Trump’s Trade War Escalation Will Exact Economic Pain, Adviser Says – The New York Times

Mr. Trump and his advisers insist his approach will ultimately pay off for the American economy — either by prodding China to open its markets and treat American firms more fairly, or by encouraging companies to shift manufacturing to the United States to avoid tariffs.

But the decision to prolong the trade war could upend economic projections that showed robust hiring, growth and investment this year, in part because of fading concerns about a protracted trade fight. And it could defy steady predictions by administration economists that Mr. Trump’s trade policy will help increase growth in 2019 to 3.2 percent — well above what most other forecasters expect.

“There is absolutely no question that these tariffs, if imposed and sustained, increase the probability of a recession,” Rob Martin, a former Fed section chief who is now an executive director at UBS, said of a potential escalation. “It makes you more vulnerable.”

Mr. Martin and his colleagues estimate that Mr. Trump’s latest increase could shave 0.25 to 0.35 percentage points off gross domestic product over six months. If the remainder of China’s products get hit with a 25 percent tariff, it could shave up to another full percentage point from G.D.P.

“If we move into that next tranche of tariffs, we’re in 100 percent uncharted territory,” Mr. Martin said. The products in that category are about two-thirds consumer goods and for many — which could include toys, bicycles and iPhones — it could be hard to find quick substitutes.

A prolonged trade war could inflict damage on China’s economy. Economic growth in China slowed in the second half of last year, in part because tariffs hurt business confidence. Since then, the Chinese government has poured billions of dollars into the financial system and pressed state-run banks into service extending credit.

Officials said last month that the economy grew 6.4 percent in the first quarter of the year, matching the pace from the previous quarter.


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