Free Trade

Wall Street Journal: Why the U.S. Could Suffer Deeper Economic Shock Than China in a Trade War

Doug Sachtleben - February 15th, 2017

From the Wall Street Journal, 2/13/2017

 

Retaliation could cause inflation to surge and cut demand for U.S. goods

A lot of economists aren’t factoring a U.S.-China trade war into their central forecast scenarios, counting on the Trump administration to curb its sharpest protectionist tendencies.

But what if it doesn’t?

“Bad for the world, worse for the U.S.,” says Nicholas Fawcett, a senior global economist with Goldman Sachs. “Trade is not a zero-sum game; by curbing imports, the U.S. could lose out in the long run.”

Mr. Fawcett figures a 45% tariff on Chinese imports and 35% fees on goods from Mexico translate into an effective tariff rate of around 11%, given their share of total U.S. trade.  Assuming Beijing and Mexico City retaliate with equivalent tariffs, he estimates it could depress U.S. gross domestic product by 0.7 percentage point by 2019. That’s more than twice the hit on China’s growth, at 0.3 percentage point. Roughly 21% of the value of U.S. imports are from China, more than double that of China’s imports from the U.S.

The most immediate impact would be a surge in prices for American consumers, given that around 10% of the basket of prices that comprise the inflation index is imported. The U.S. imports roughly three-quarters of its toys, shoes, computers and telecoms equipment from China and other Asian emerging markets.

The higher costs for U.S. goods abroad would also sink demand for American exports.

“In fact, tariffs would likely hit U.S. GDP so sharply that the Federal Reserve would be prompted to reduce interest rates to cushion the blow—despite an increase in inflation,” Mr. Fawcett says in a Goldman Sachs research report.

Ian Tomb, a macro strategist with Goldman, says either a surge in input costs for U.S. production or falling demand “could prompt globally connected firms to reduce wages and cut workers.”

That’s why among the losers will be some of his most ardent supporters: blue-collar workers who helped sweep him to election victory.

The fallout would spread to other countries, including Europe and Japan, as U.S. demand for international goods slumped. U.S. allies with strong trade relationships with China such as Korea would get hit from both sides of the shock. And with the Fed cutting rates and the dollar subsequently weakening, the yen and the euro would appreciate, adding to their woes.

The potential danger of a trade war is why the International Monetary Fund and others aren’t including a tit-for-tat tariff brawl in their projections. (Here’s why the IMF is worried about rising protectionism globally.)

But, warns the Institute of International Finance, “The likelihood of harsher trade initiatives should not be underestimated.”

OP-ED: Trump’s “Big [Bad] Border Tax”

Doug Sachtleben - January 05th, 2017

By David McIntosh

Read the article on Townhall.com >>>

When the President-elect takes to Twitter to threaten a major American company with a “big border tax,” as he did again on Tuesday, Americans are the real losers. First, it is working families who would pay the Big Tax. Second, the fact that the future leader of the free world is signaling out a private employer for a campaign of berating criticism means that everyone is in jeopardy.

American companies already face the highest corporate tax rate in the industrialized world at 35%. Forty-four states levy an additional corporate income tax. Those high taxes are passed along to consumers as the price of doing business.

If the President-elect follows through on his threats, those costs will soar even higher. In fact, here’s exactly what happens when Washington imposes tariffs on imports coming into the country:

1. The price of the imported product rises. A tariff is a hidden tax that’s passed along to buyers. Tariffs are often in double digits so they hurt everyone from consumers buying new electronic gadgets to businesses that are importing raw materials for products finished here.

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Club for Growth Supports Ryan’s No-Tariff-Increase Pledge

Doug Sachtleben - January 05th, 2017

“The President-elect’s threat of a ‘big border tax is bad policy and bad precedent.”

 

Washington, DC – Club for Growth president David McIntosh released the following statement in response to published reports that Speaker Paul Ryan said, “We’re not going to be raising tariffs”:

“The President-elect’s threat of a ‘big border tax’ is bad policy and bad precedent, and we applaud Speaker Ryan for unequivocally ruling out tariff increases,” said Club for Growth president David McIntosh. “American consumers, workers, and businesses would be the big losers if tariffs were used to arbitrarily punish companies. Taking that threat off the table is a smart move by the Speaker of the House.”

Note: In a column posted yesterday on Townhall.com, Club President David McIntosh outlined the Club’s opposition to the President-elect’s “big border tax”: http://townhall.com/columnists/davidmcintosh/2017/01/04/trumps-big-bad-border-tax-n2267149

Club for Growth Backs House Leadership’s Warning Against Tariffs

Doug Sachtleben - December 05th, 2016

“Tax cuts and deregulation will make the American economy great again, but tariffs and trade wars will make it tank again.”

 Washington, DC – Club for Growth president David McIntosh released the following statement in response to published reports that “House Majority Leader Kevin McCarthy refused to back President-elect Donald Trump’s push for a 35-percent tariff on companies that move operations abroad…”:

“Tax cuts and deregulation will make the American economy great again, but tariffs and trade wars will make it tank again,” said Club for Growth president David McIntosh. “The president-elect is spot on when he calls for cutting taxes and federal regulations, but 35-percent tariffs would be devastating to consumers and businesses. The Majority Leader is right to caution against protectionism and to urge a robust debate on free markets and trade.”

Trump Should Tread Softly On His New Trade Agenda

Doug Sachtleben - December 02nd, 2016

In an op-ed published (11/28/16) in Investor’s Business Daily, Club President David McIntosh and Cato Institute Adjunct Scholar Scott Lincicome addressed economic and legal concerns in the President-elect’s trade rhetoric.

IBD Op-Ed

President-Elect Donald Trump has released an ambitious to-do list. His plans for cutting individual and corporate taxes, for repealing and replacing ObamaCare, and for regulatory reform all hold great promise. But his threat to dismantle the North American Free Trade Agreement (NAFTA), and to use import duties to force our trading partners to bend to his will, would tank any economic recovery and have severe constitutional implications.

It’s crucial to remember the tremendous benefits of trade, particularly through NAFTA.  About one-third of all U.S. merchandise exports are bought by Mexico and Canada, and exports from our service industries and from the agriculture sector have risen dramatically under the agreement.

Thanks to imports, American families effectively stretch their pay check by about $10,000 each year. Around 800,000 American auto industry jobs depend on a seamless North American supply chain to stay globally competitive. American-made raw materials constitute about 40% of the content of the products we import from Mexico, and almost 75% of all U.S. inputs that return here as finished goods come from Canada and Mexico. Undoing NAFTA would cause job losses, lower living standards and economic calamity.

The imposition of tariffs punishes all American consumers, and businesses that use cheap imports as raw material in the things they make. The reward for tariffs goes to a select few in a certain politically connected industry that is being protected. It’s cronyism that hurts all Americans and does nothing to fix whatever perceived problem there was with trade.

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