Discussion: (0 comments)
There are no comments available.
A public policy blog from AEI
Call it “Trade War Stories.” Increased steel costs have forced MidContinent Steel and Wire of Poplar Bluff, Missouri, to lay off 60 workers. Iconic American motorcycle manufacturer Harley-Davidson said it would shift some production overseas to avoid EU retaliatory tariffs imposed in response to President Trump’s trade measures. Washing machine prices are up nearly 20%. Protectionism is the new national security. Just the beginning perhaps if more of Trump’s trade threats are turned into reality. Enough pain to cause a recession? Probably not with a highly caffeinated American economy thanks to federal tax cuts and spending increases. At least that’s the consensus view. Maybe a chop a third off a percentage point, maybe a bit more if things really get out of hand. Goldman Sachs:
A multilateral trade war — in which everyone imposes a tariff on everyone else — would lead to higher world inflation, tighter monetary policy and slower growth. The negative effects would be amplified if equity prices dropped around the world, as financial conditions provide an important channel for negative spillovers. . . . We see that the economic effects get a lot bigger when the trade war escalates. The US GDP hit rises to almost 0.5%, primarily due to the drop in equity prices.
So long 3% growth. But some economists are more concerned, such as Bank of America Merrill Lynch economist Ethan Harris:
Our calculations suggest that a major trade war would lead to a significant reduction in growth. A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.
Still, I wonder if even this sort of analysis really catches all the risk. This presidential tweet is chilling: “A Harley-Davidson should never be built in another country-never! Their employees and customers are already very angry at them. If they move, watch, it will be the beginning of the end – they surrendered, they quit! The Aura will be gone and they will be taxed like never before!”
Bad news if that’s what American-style capitalism becomes, where companies either play ball with the politicians or the politicians attack. From one of my The Week columns:
Of course it wasn’t so long ago that Republicans were attacking the Obama White House for its “crony capitalism,” including the auto bailouts and clean energy investments in firms like Solyndra. Republicans, on the other hand, were supposedly stalwarts for competitive capitalism and vehemently against government “picking winners and losers.” Some even said they were “pro-market” rather than “pro-business.” Now, not so much. Which makes you wonder if either party is willing to strongly fight for free enterprise and market-driven economic policy anymore. In her 1998 book, The Future and Its Enemies, Virginia Postrel saw the major dividing line in American politics as less left vs. right than the “dynamists” vs. the “stasists.” The former values change and experimentation, as messy as those things can be. Dynamists live in anticipation of the future because they just know it will be a great place. The stasists often are nostalgia-ridden and willing to use top-down control to keep things as they are or try to shape them into familiar forms. Today they fight globalization, tomorrow it might be robots and artificial intelligence in order to “save jobs.”
There are no comments available.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2018 American Enterprise Institute