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Ever since President Trump took office, business groups and others have warned against a trade war. But if a trade conflict had to erupt, the timing isn’t bad. The US economy is booming, and jobs are plentiful. That gives the US leverage. And at a Monitor Breakfast Wednesday, Chamber of Commerce president Tom Donohue agreed that China needs to be confronted over trade practices in areas like intellectual property. “If we don’t fix [the issues] now it’s going to get more and more difficult to do it,” he said. Yet the Chamber itself is opposing the escalating tariffs, arguing for other tactics instead. And for consumers, the latest round of tariffs will raise prices on everything from Chinese high chairs to handbags, toilet paper to seafood. Still, absent a plunge in economic growth or the stock market, it’s not clear that there’s enough political opposition in the United States to stop trade tensions from rising with China and others. Says economist Gregory Daco, “The endgame, sadly, may actually be further escalation before things begin to ease back.”
If ever there was a good time for America to launch a trade war, this is it.
The economy is booming. Jobs are plentiful. Even as tariffs begin to raise prices and slow business activity, things are going so swimmingly that consumers may barely notice.
Even the politics pose little obstacle, with Republicans holding both houses of Congress and hesitant to challenge their president on trade while Democrats are divided over the issue.
So as President Trump pushes trading partners to make concessions – and threatens a trade war if they don’t – he is doing so from a position of strength. His challenge is that the more he exerts his economic leverage on other nations through tariffs, the more opposition he is likely to face at home.
Businesses, feeling the squeeze, are already becoming more vocal. Consumers will eventually notice those higher prices and, possibly, fewer choices on the store shelves.
“The single biggest threat facing the economy right now is the potential for a real trade war,” US Chamber of Commerce president Tom Donohue said Wednesday at a breakfast hosted by The Christian Science Monitor. He said his group agrees on the need to confront China over its trade practices, but that “it shouldn’t be the US consumer that’s paying.”
This week, Mr. Trump escalated his trade battle with China. The administration announced on Monday 10 percent tariffs on some $200 billion in Chinese imports, scheduled to take effect next week. On Tuesday, China announced it would retaliate with tariffs of its own affecting $60 billion in US imports.
“The economy is giving him a lot of leeway to conduct policy this way,” says Bart Oosterveld, director of the global business and economics program at the Atlantic Council, an international-affairs group based in Washington. The dollar is so strong, keeping import prices low, that consumers may not notice the price hikes, he adds. “The people who line up in front of the doors of Walmart at 5 o'clock on Black Friday, I’m not sure they’re going to be concerned with the two or three dollars that they're going to pay more for certain goods.”
Latest tariffs will affect consumers
But those duties will go up to 25 percent at the end of the year, the administration announced. And the more tariffs spread to new goods, the more personal they become to consumers. When the administration first announced tariffs on Chinese goods back in June, they hit products like auto parts and semiconductors, things most consumers don’t buy directly. The latest round of tariffs, by contrast, will raise prices on everything from Chinese-made high chairs to handbags, toilet paper to seafood.
What will happen if the tariffs hit the new Apple iPhone XS or XS Max, models that are already giving consumers pause because of their $1,000 and up price tags? (Notably, Apple's smart watch and wireless headphones were trimmed from the list of tariffs announced this week.)
Another important voice is big business. While some industries such as steel applaud tariffs because of the insulation it provides from foreign competition, more industries, which depend on exports or imports, are likely to resist Trump’s trade policies as tariffs spread to new sectors and disrupt supply chains. In a survey of its members released Tuesday, the US-China Business Council found 73 percent of companies saying their business has been affected by trade tensions.
Mr. Donohue, speaking for businesses nationwide, said the Chamber of Commerce isn’t brushing off concerns such as the erosion of American firms’ technological edge or theft of intellectual property. At the breakfast, he said the issues with China are “real serious, and if we don't fix them now it's going to get more and more difficult to do it.”
But the Chamber would like to see the US lead a multilateral effort on trade policy, rather than going it alone in a stand-off with China.
Donohue said that in urging against a trade war, “we're finally getting other people to join in this effort in a broader basis than we had in the past, because they're beginning to understand the need to convey what their concerns are – individual associations, other national groups, to say, ‘Hey, this is affecting our constituents.’ ”
Another potential change looming on Trump’s horizon are the midterm elections, although their effect on trade may be limited. If Democrats recapture the House, the president will no longer be able to rely on automatic support from Congress. And if they retake the Senate as well, in a “blue wave” election that calls into question Trump’s popularity, even GOP lawmakers may be more likely to criticize his trade policies.
But if a blue wave happens, the GOP lawmakers who fall will be the moderates who support free trade, and those who remain will be solid red-district Trump supporters, says Stephen Biddle, professor of international and public affairs at Columbia University in New York. And “Democrats are conflicted on trade,” so they’re unlikely to push on an issue that divides their party.
Overall, tariffs are not a winning political issue. Forty percent of voters oppose them while 38 percent support them, according to an AP-NORC poll of 1,055 adults in mid-August. But two-thirds of Republicans approve of the imposition of tariffs, fueling suspicions that Trump is taking a tough line with trading partners ahead of the elections to whip up his supporters.
To some observers, Trump’s trade policy is purely based on such domestic political considerations. “This is playing to the base,” says Professor Biddle.
Too big an ‘ask’ from Trump to China?
Trump’s fans, by contrast, say the saber-rattling bravado is all part of a shrewd strategy to extract maximum concessions from trading partners. They point to trade deals the president has completed with South Korea and now Mexico. And some of China’s trade-related actions have been so egregious that other countries as well as previous US administrations have also complained about them, they point out.
The problem is that it’s not at all clear what the administration is asking China to do. Some administration officials suggest it is to end certain practices, such as forcing US companies to transfer technology to a Chinese partner in return for permission to operate in the country. Other officials appear to be calling for China to renounce its strategic development plan.
“The US administration is really asking China to surrender unconditionally on all trade fronts,” says Gregory Daco, an economist at Oxford Economics, a forecasting and analysis firm based in Oxford, England. “We know from prior experience that China will not fold just because there is a threat of tariffs.”
So the escalation in trade tensions is likely to continue for some time, analysts say. Perhaps until there’s a sharp plunge either in the stock market or economic growth (says Mr. Daco), or “a new president,” (says Biddle).
Staff writer Mark Trumbull contributed to this article from Washington.