Free Trade

The Escalating Trade War Is Bad News for Pretty Much Everyone

Stocks plunge as China cuts off purchases of American agricultural goods, U.S. responds by labeling China a "currency manipulator" because the Chinese government is no longer artificially propping up the yuan.

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Tensions rose and stocks fell on Monday as the trade war between the U.S. and China escalated to a dangerous new level.

There have been three major developments in the past week—all of which have moved the two sides farther apart, marking a clear end to what had been a months-long truce and stoking fears of a recession if two of the world's largest markets can't work out their problems. On Thursday, President Donald Trump announced a new round of tariffs hitting about $300 billion of un-tariffed imports from China. China responded on Sunday by announcing that it would cut off all purchases of agricultural goods from the United States. On Monday evening, the U.S. responded again by officially labeling China a "currency manipulator"—a move that expands the trade war into a new arena.

That series of events sent markets (and market-watchers) into red alert. The Dow Jones Industrial Average suffered its sixth-worst single-day points loss on Monday (though the Dow regained about 170 points within the first half hour of trading on Tuesday). The Dow is down 6 percent since July 15—and the market has now fallen below the level it was at when Trump launched his trade war in early 2018.

Another ominous indicator for a president who has tied his administration's success to the stock market's performance: The yield on 10-year bonds issued by the U.S. Treasury, a safe harbor for investors fleeing turbulent markets, has now fallen below its level on the day Trump was elected. (Unlike stocks, bond prices fall when they are in greater demand.)

Worse could be coming. In an economic analysis, investment bank Goldman Sachs said "we no longer expect a trade deal before the 2020 election" in light of recent developments, starting with Trump's announcement of additional tariffs last week. Former Treasury Secretary Larry Summers said Monday's developments put the U.S. in "the most dangerous financial moment since the 2009 Financial Crisis." And analysts from Morgan Stanley, another investment bank, fretted that a global recession could be less than a year away.

While none of the actions taken in the past few days have been immediately damaging to either country—the threatened tariffs won't hit until September, and the "currency manipulator" label is mostly a symbolic thing—the reaction is a good reminder that trade wars are psychological events as much as anything. Investors and markets are clearly rattled at the moment, as hope for a quick resolution of the fight between the world's two biggest economies appears to be fading.

"It's never been more clear that tariffs are a failing strategy," says Jonathan Gold, spokesman for Tariffs Hurt The Heartland, a coalition of more than 150 trade associations that oppose the president's trade policies. "Behind today's market turmoil are real Americans who have been used as bargaining chips in this trade war."

"Both sides need to return to the negotiating table immediately," cautions Gold. "Nobody wins in a trade war, and right now, everyone is losing."

Farmers, again, could be hit the hardest. China's decision to cut off all agricultural purchases from the United States means the complete loss of a $20 billion export market. There is not enough welfare or bailouts that can make up for that.

The immediate loss of China as an export market is bad enough, but there's also little prospect for restoration. As I've written before, one of the main casualties in a trade war is trust—something that is also essential for two economic rivals to reach a trade deal. Now? China "no longer expects goodwill from the United States," tweeted Hu Xijin, editor in chief of the Global Times, a Chinese newspaper published by Chinese Communist Party. Does that sound like a government ready to make a deal?

It's hard to imagine how any of this is good news for Trump. News coverage this week has focused on a mass shooting where the killer namechecked Trump in his "manifesto" and on a massive drop in the stock market brought on by the president's trade war—a conflict Trump promised would be "good and easy to win" at its outset.

As the trade war escalates to a new level, that claim looks more ridiculous than ever before.

"We're learning that maybe China has a higher pain threshold than we thought here," Stephen Moore, Trump's economic advisor during the 2016 election and a close (though unofficial) advisor to the president, told The Washington Post.  "It's kind of a mutually assured destruction game right now."

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  1. MARKETS IMPLODE!

      1. I’m gonna get boehm a signed Krugman book. He deserves it.

          1. Boehm seems to have been literally born yesterday, so I doubt it.

  2. “It’s never been more clear that tariffs are a failing strategy. Behind today’s market turmoil are real Americans who have been used as bargaining chips in this trade war. Both sides need to return to the negotiating table immediately. Nobody wins in a trade war, and right now, everyone is losing.”

    Oh please. Spare the histrionics Mr. Boehm.

    Exactly what are we supposed to do, faced with a serially lying, serial cheating, serially thieving ‘trade partner’ who has been doing that for decades? Talk nice? To change the behavior, you need a tool to do that. POTUS Trump is using tariffs. I am not thrilled, but I don’t see a better tool in the toolshed.

    The Red Chinese have exported tons of fentanyl to our country, killing tens of thousands of our citizens. Enough is enough.

    To the ideological purists out there….exactly what alternative do you offer? Do nothing? Newsflash: Been there, done that. And we lost out….bigly. Tell Readership what a practical alternative to tariffs to force a change in the behavior of the Red Chinese. Go ahead, we’ll wait. Because in 25 years, nobody accomplished much.

    This market blip is totally overblown. Call me when the market is down by 40%. Even then, not a big deal in the long-term.

    1. Atlas Shrugged is now a statist protectionist!
      Just another alt-right phony here,

      The Red Chinese have exported tons of fentanyl to our country, killing tens of thousands of our citizens. Enough is enough.

      AND OBAMA IS A MUSLIM FROM KENYA!

      I am not thrilled, but I don’t see a better tool in the toolshed.

      In fairness, he does admit his staggering level of ignorance.

      1. TLTTeller…Hogwash! = statist protectionist

        There is a thing called objective reality. There is extensive documentation of Chinese fentanyl manufacturers shipping their poison to us. Do you deny this?

        It is objectively true that the Red Chinese have been serially lying, serially cheating and serially stealing our IP for decades. There is extensive reporting on this. Do you deny this?

        Tell us, what alternative to tariffs do you offer? Like I said, I am not thrilled about tariffs, but is there a more effective tool in the tool shed? Perhaps there is, but you have not stated what that is. Ok, tell us: What alternative do you offer to address this? Help me overcome my staggering level of ignorance. Go on….educate me.

        I rather suspect you’ll have nothing. But hell, I can wait.

      2. Fuck me in the butt Hiln.

    2. exactly what alternative do you offer? Do nothing?

      The government should do nothing, correct.

      Individual consumers should use their own moral code to guide their decision making. If they believe China is as corrupt as you say it is, then many will presumably vote with their wallets. Some will not, however.

      Using tariffs against China because China is a “bad nation” is an example of the state substituting its moral judgment for that of each individual.

      1. chemjeff….I think you are wrong about this, “The government should do nothing, correct.” Why?

        In an exchange of value for value, it relies on basic transparency, honesty, and a willingness to follow contract terms between the parties. When that does not happen, there has to be a sanction to cure the breach.

        There are many instances where doing nothing is the best option. The Founders saw this clearly, and they were right. However, in the face of a serially lying, serial cheating, serially thieving trade partner….doing nothing is not an option. Then layer the export of fentanyl on top of that. This is why I think you miss the mark.

        I’d rather we not have to resort to tariffs. But in this case, we do not have a better tool in the tool shed to change Red Chinese behavior. Can you suggest a better way to change their behavior?

        1. I’d rather we not have to resort to tariffs. But in this case, we do not have a better tool in the tool shed to change Red Chinese behavior. Can you suggest a better way to change their behavior?

          I would question whether it is the job of the US government to change their behavior.

          Again I would leave it up to individuals to decide how they wish to spend their money.

          1. Jeff you’re so fu kng stupid you just made a fool of yourself because you can’t tell the difference between the OED and the learners dictionary. Fuck, you stupidly a noun Ed how much of a moron you were by banging on other people’s search skills when you made THAT stupid, fundamental idiot mistake.

            No one cares what an idiot like you thinks.

          2. chem….It is most certainly the job of the Federal government to stop China from their serial lying, serial cheating and serial theft of our IP. I think this falls under ‘conducting foreign policy’.

      2. Shut the fuck up Jeff, you lie about defintions, can’t propey do an internet search, and when definitively proven wrong, resort to gaslighting.

        No one gives a singe shit what your lying ass thinks.

        Get back to importing child rapists.

        1. In fairness, gaslighting is literally all Jeff does

      3. Individual consumers should use their own moral code to guide their decision making

        As long as consumers are the beneficiaries of massive government handouts and redistribution schemes, they are not free citizens participating in a free market, they are beneficiaries of cronyism spending their ill-gotten gains.

    3. Atlas, you’re responding to Hihn. No good comes of that.

      1. LastOTS….Well, I can try to be polite about it. 🙂

        1. It is interesting that your Atlas/Alfred sock IS polite Hihn, when you’re such a shithead otherwise.

  3. The impetus for the tariffs is the part of this political equation Reason authors will never discuss.

    https://money.cnn.com/2018/03/23/technology/china-us-trump-tariffs-ip-theft/index.html

    1. The impetus for the tariffs is the part of this political equation Reason authors will never discuss.

      If Trump was the dealmaker he claims … instead of a MASSIVE failure, EVERYWHERE … he could negotiate a deal.

      Instead, he’s playing thug again … and getting his ass kicked again … while higher consumer prices already cost the middle class more than his puny tax cut.

      You also blew it on reason’s writers, who reported that China is NOT the biggest IP theft country … as reported by … wait for it …
      ….. FOX NEWS!
      https://reason.com/2013/12/17/what-governments-being-accused-of-serial/

      That’s right, even Fox says you and Trump are blowing smoke out your ass.

      1. Hihn, time for hospice. You need to die ASAP.

      2. “who reported that China is NOT the biggest IP theft country”

        No actually you blew it Hihn, you illiterate fuck. No one said biggest.

    2. How is it the construction or agriculture sectors problem that Big Tech gave their IP away to China in order to access their market? Outright theft is one thing but the article you linked to mixes theft with voluntary (nothing forced) tech transfers. So I should pay more in taxes because Apple, an Irish company for tax purposes, made a bad deal?

      1. “How is it the construction or agriculture sectors problem that Big Tech gave their IP”

        Agriculture has a ton of IP too.

        1. If they entered into an agreement with the Chinese then it was their fault too, same with any construction company. I can’t get any info broken down between voluntary tech transfers and actual theft. Every time I see these type of estimates ($180 billion to $540 billion per year in theft, which seems like a wide margin to begin with) they include both theft and voluntary agreements. So is China stealing 2 million dollars of tech a year and the rest is vol. tech transfers? Until I see these numbers broken down by reputable people I am inclined not to trust that the problem is so wide spread as to warrant the conscription of my labor to an illegal tax scheme (remember only Congress is supposed to able to levy taxes).

          1. Please keep sticking up for income and payroll taxes

  4. I quit working at shoprite and now I make $30h – $72h…how? I’m working online! My work didn’t exactly make me happy so I decided to take a chance on something new… after 4 years it was so hard to quit my day job but now I couldn’t be happier.

    Heres what I’ve been doing… ,,,

    CLICK HERE►► Aprocoin.com

  5. Poor Boehm.

    As Capitalists like me buy more newly cheap stock, the DOW Jones goes back up.

    1. 1789….So true. My only regret yesterday was not having more cash on hand to buy index funds (S&P500, small cap and mid cap) at a discount. 🙁

    2. Umnm, it was China withdrawing their currency threat. Check the news! While you had your head jammed up Trump’s ass, China manipulated our stock market … TWICE … in both directions.

      So your ignorance of stock prices, matches your ignorance on how China’s foreign exchange threat would CRUSH your orange God. On top of Trump’s damage to consumer prices and our farmers.

      I’ll go slowly for ya,
      In Trump’s tariff fantasies, the tariffs will be paid by China, which his minions also swallow.

      Economics 101. The ONLY way tariffs MIGHT work is if higher prices on Chinese goods cause fewer Chinese imports to be purchased here — AND the Chinese goods are replaced with US goods …. and not by every other cheaper country on earth. (duh)

      NOW DO YOU SEE IT??.
      I didn’t think so.

      What China just showed the educated world is that lower exchange rates will offset the effect of higher tariffs on prices, guaranteeing ANOTHER massive Trump failure in foreign policy,

      Elementary school math, plus Econ 101!

      Trump has never had to be his bully self with an empty hand.
      So EVERYONE is kicking his ass. (He doesn’t know how to deal. only wants to win, which is why he keeps losing. WHY WOULD THE HEAD OF A FOREIGN COUNTRY MAKE A DEAL AT A LOSS??? )

      Thus, 60% of Americans would “absolutely” not vote to re-elect Hitler Trump.

      1. Poor Hihn.

          1. You poor little thing. The words are so mean. Go away or I cry more!

            1. I believe that, it shows in the fact that Jesse pissed you off enough to spoof him.

    3. As Capitalists like me buy more newly cheap stock, the DOW Jones goes back up.

      That failed BIGLY in 1929
      and 1980
      and forever.
      You’re just slurping Trump’s cock again.

        1. Baby still sad mean words don’t go away? It’s ok sweetheart mean words can’t get you.

          1. Good thing I’m not a child so you can’t rape me Shreek. But Jesse really got to you, you keep spoofing him.

        2. Pi think Kiddie Raper is spoofing accounts again. We really need tog etc his real ID so we can turn him in for his pedophilia.

  6. “(Unlike stocks, bond prices fall when they are in greater demand.)”

    This is incorrect. Bond prices do not fall with greater demand, bond yields do.

    1. I came here to say same. As demand for bonds increase bond prices increase, the interest is a fixed dollar amount, so yield (interest) percentage falls as the divisor (purchase price of bond) rises.

  7. “Is Bad News for Pretty Much Everyone”

    It’s good news for Australia, Russia, Brazil and other countries who are eager to sell their agricultural products to China.

    1. +1,000!! Also, good news for Vietnam & others that the USA can us to replace stuff from China!

  8. How many times does this idiot get to be wrong on this subject? It’s embarrassing.

  9. This is a ridiculous article.

    China is suppressing the Yuan against the USD, not propping it up.

    The charge of currency manipulation was leveled as the force the exchange rate below $0.141 (i.e., above 7 CNY/USD)

  10. China probably doesn’t care if trade wars hurt their people. A few years ago they banned KPOP and cracked down on South Korean imports over THAAD installment. The fact that China wouldn’t go that far with the USA shows how much clout we have in the global economy.

    But you can’t win a trade war with a nation that has unilateral power over their economy. No one wins in a trade war to begin with. China is a cheater and a fascist state so there some hills worth dying on. But Trump is either at or approaching a point where he needs to decide what the endgame is. Korea and Japan are in a trade spat of their own. We can’t have 4 nations who practically run the global economy bogged down in long term trade wars.

    A new deal with China and troop withdrawal from AFG is the best thing Trump can do for the nation right now, perhaps the best and final act of his presidency.

    1. “Everyone should always cave to China”

  11. The current economic and stock market performance are artificial economic bubbles; the sooner a correction comes, the better. On top of that, tariffs discourage overstimulated consumption and actually generate a bit of government revenue, two more things.

    The people who hate all this are the people who benefit from the bubble economy, and that includes Reason’s financial backers.

  12. Such BS. The market isnt even real. Still, I’d cheer if they ever let it actually “crash”.

  13. “Unlike stocks, bond prices fall when they are in greater demand”. I think you meant bond YIELDS fall. Prices of bonds respond similarly to stocks.

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