Trump sinks the markets — and maybe his reelection chances


President Trump in the Rose Garden on July 11. (Jabin Botsford/The Washington Post)
Opinion writer

August 6 at 10:15 AM

As a result of President Trump’s deepening trade war with China and decision to label China a currency manipulator, financial markets on Monday took a beating, with the Dow down 767 points (about 3 percent) in the worst trading day of 2019. The Post reports: “The U.S. last named China a currency manipulator in the early 1990s, and has not applied that designation since. … Under the designation, America could impose much more significant tariffs on China than it has so far — which could trigger further retaliation from China.” Even worse, economists fear that “the most dangerous potential consequence of a currency battle would be a slowing of overall economic growth in the U.S. and China, at a time when analysts already fear a global slowdown could push the U.S. into a recession.” The market continued to sink in after-hours futures trading on Monday.

Economist Jared Bernstein bluntly explained that “the whole damn trade war looks to be going badly from Trump’s perspective, predictably so as such wars tend to ding both imports and exports. In fact, in the most recent quarter, exports/GDP were close to a 10-year low and the trade deficit hasn’t improved at all on Trump’s watch.”

To make matters worse, “China confirmed reports that it was pulling out of U.S. agriculture as a weapon in the ongoing trade war,” CNBC reported. “A spokesperson for the Chinese Ministry of Commerce said Chinese companies have stopped purchasing U.S. agricultural products in response to President Trump’s new 10% tariffs on $300 billion of Chinese goods.” That should come as a shock to U.S. farmers already reeling from existing tariffs and potential permanent loss of markets.

All of this certainly explodes the notion that Trump is “winning” the trade war. James Pethokoukis of the American Enterprise Institute explains:

At the very least, President Trump’s “trade wars are good and easy to win” axiom isn’t playing out. Not only did the president say he’s imposing 10% tariffs on another $300 billion of Chinese goods starting Sept. 1, but Beijing looks like it’s not expecting a resolution any time soon as it lets the renminbi weaken, or “crack seven” in [traders’] parlance. The Financial Times calls the move “a clear sign that Beijing is prepared to use the currency as a weapon and let the trade war drag on.”

Keep in mind that even before this last escalation, jobs in manufacturing were waning. Economists now worry this might throw the economy into reverse. Former car czar Steven Rattner tells me, “The decisions by China to devalue its currency and by the United States to label that country a currency manipulator signaled that this trade dispute is unlikely to be quickly resolved.” He explains: “Until now, markets had assumed that Trump’s bluster and limited imposition of tariffs was part of a negotiating strategy to get better trade deals. But this time seems almost sure to be different; the two nations are now deeply dug into their corners.”

What impact might the currency fight have? “The consequences for the world could well be profound; reaction in both stock and bond markets suggests that a global recession could easily occur,” Rattner warns. “That would be a significant black mark for Trump. Ironically, the man who promised to make America great again could well be fully responsible for a completely unnecessary economic contraction.”

Is there an escape hatch somewhere? “The only thing I can think of is a political pressure valve,” Bernstein argues. “If the escalating trade war whacks US consumers through inflation and real growth channels, and does so close enough to the 2020 election, Trump could decide to dial his protectionism way back, and fast.”

Trump has been beating up on Federal Reserve chair Jerome H. Powell, trying to goad him into future interest-rate cuts. However, nothing that the Fed is likely to do will make up for the economically suicidal trade war Trump has launched. His tariffs — a tax on consumers — might have already cost working- and middle-class taxpayers more than the pittance they saved in the tax cuts. He now puts in jeopardy the sole rationale for his reelection: the economic recovery. His die-hard supporters in red states where the farm economy might sink further into distress might finally figure out that Trump has no plan to “win” a trade war, and hence, no way to stop the economic havoc he created.

Read more:

Daniel Drezner: This trade war will get out of control

Benn Steil and Benjamin Della Rocca: Trump’s tariff claims are demonstrably false. Here’s why.

George F. Will: The vast incoherence of President Tariff Man

Catherine Rampell: Trump’s narrative is nonsense. So why is the media buying it?

The Post’s View: Trump’s biggest mistake in the trade war with China