Donald Trump's trade wars have not been 'easy to win' | Financial Times - 0 views
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The phase one trade agreement between the US and China signed on Wednesday is only a truce in the trade war, rather than a major reversal of the tariffs imposed since 2018. Nevertheless, it halts a dangerous political momentum.
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Jan Hatzius of Goldman Sachs describes this as a “subtraction of the negatives”. Paradoxically, the worse the effects on US growth rates in the past two years, the greater the scope for a bounceback this year. Mr Trump’s initial confidence about the effects of trade protection was based on a belief that China’s bilateral trade surplus with the US would force President Xi Jinping to make major policy concessions to safeguard his own export sector. The outcome was rather different: China retaliated with similar measures and this damaged American manufacturers.
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The damage to financial and business confidence triggered by the trade announcements hurt US growth still further. The tightening in financial conditions caused by the rising dollar and the collapse in equities late in 2018 would probably have been more severe if the Fed had not reduced policy interest rates by 75 basis points since then.
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The good news is that part of this overall drag may disappear before the end of 2020, boosting American GDP growthby at least half a percentage point.What about the longer-term benefits of the trade deal?The purchase of $200bn of additional US exports in the energy, agriculture, manufacturing and services sectors, spread over two years, will reduce the bilateral trade deficit with China. But many of these exports will probably be redirected from elsewhere and will not boost US domestic output in those sectors. Longer term, China’s business restrictions, including alleged unfair trading practices, appear to be easing. Given the political boost from the phase one deal, Chinese economic reformers such as vice-premier Liu He may be in the ascendancy in Beijing for a while.
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The trade war has significantly damaged US growth in 2018-19Since President Donald Trump became more aggressive in his threats about trade protection early in 2018, US tariffs on Chinese goods have risen markedly, prompting retaliation from China. There have been only a few comprehensive studies on the overall impact of tariffs on the US growth rate. A notable exception is the work of Jan Hatzius’s US economics team at Goldman Sachs. They have estimated the possible impact of rising tariffs on net trade flows, real incomes, financial conditions and business confidence, and have combined these effects to produce the aggregate growth estimates shown in the graph below. As the negative effects of rising tariffs fade in 2020, the US growth rate is expected to be boosted by at least half a percentage point.