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Trump's tariffs have made the US trade deficit worse

By Dan Steinbock | chinadaily.com.cn | Updated: 2019-10-31 10:47
US President Donald Trump takes questions from the media on Oct 10, 2019. [Photo/IC]

According to the new IMF outlook, global growth is forecast at 3 percent for 2019. That's the lowest since the global crisis of 2008-9. The decline is largely due to the US tariff wars, which have contributed to projected slowdown in the US and China.

Due to the global slowdown, world growth prospects now hover at levels similar to the darkest moments of 2008/9.

Recently, international media reported in August, the US goods trade deficit with China decreased 3.1 percent to $32 billion relative to previous month. Yet the deficit actually widened to almost $55 billion in August. While exports rose 0.2 percent, imports increased more than twice as fast at 0.5 percent.

Unfortunately, monthly data does not reflect overall trends. In the longer view, the US trade deficit improved during the Great Recession when imports declined. As the economy recovered in the early 2010s, multilateralism kept the deficit at around $40 billion per month.

The change came when President Trump's trade threats turned into tariff wars in 2018. Since then, the trade deficit has been around $50 to $60 billion per month, while the trend line suggests progressive deterioration.

What about China's trade surplus? In September, Chinese exports declined 3.2 percent over a year earlier, which the White House's trade hawks saw as progress. Nevertheless, imports to China plunged more than twice as fast at 8.5 percent. That's what happens in times of trade friction and uncertainty; import growth declines. 

Because of this, China's trade surplus actually widened to $40 billion in September. In the long view, the trend line indicates the relative strength of the trade surplus, even amid US tariffs.

The bottom line? The Trump tariff wars are working – if the strategic objective is to weaken the US trade deficit and deepen trade friction with China and other trading nations, particularly in developing sectors of Asia.

How US tariffs hurt the poorest economies

Worse, the Trump tariff wars are harming the world's poorest economies. In the postwar era Washington's trade, investment and financial ties broadened and deepened, mainly with advanced economies in Western Europe and Japan. These postwar economic "miracles" did not support the rise of the Third World – developing Asia, Africa, the Middle East and Latin America.

In the past decade or two, China's economic ties have broadened and deepened dramatically — not just with advanced economies, but with emerging and developing world regions as well. Moreover, the Belt and Road Initiative seeks to accelerate modernization in poorer economies in which industrialization was never completed or has barely begun.

The difference is critical. Since China's contribution to the rise of poorer economies is now vital, any collateral damage US tariff wars inflict on China, whether directly through trade and investment abroad or indirectly through the reduction of Chinese output potential, will disproportionately harm the poorest economies in the world – through their external trade ties and via multiplier effects in their domestic economies.

The longer the US tariff wars prevail, the broader the collateral damage will be in emerging and developing economies.

Diminished global prospects

In 2008 and 2009, the global crisis was contained by massive fiscal stimulus packages, ultra-low rates and, when that proved inadequate, rounds of quantitative easing.

Now, a decade after the crisis, central bank rates remain ultra-low and most continue asset purchases, whereas soaring debt levels limit new fiscal injections.

The IMF projects growth to pick up to 3.4 percent in 2020. That, however, is predicated on improvements in a number of emerging economies in Latin America, the Middle East and developing Europe, which would require a trade recovery. And the latter is not likely as long as the misguided US tariff wars prevail.

The Trump administration's tariff wars are the worst policy mistake in the postwar era. They will improve neither the US trade balance nor global economic prospects. They have already made both worse.

Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group.

The opinions expressed here are those of the writer and do not represent the views of China Daily and China Daily website.

 

  
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