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Trump probably has the upper hand in trade war — until September

President Trump and first lady Melania Trump meet with Britain's Queen Elizabeth at Buckingham Palace, in London, on June 3, 2019. (Toby Melville/Reuters)
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President Trump appears eager to pile more tariffs on China and Mexico, living up to the “Tariff Man” moniker he assigned himself last year. The question is: Will any of this work?

Trump all along has said his tariffs are part of a broader effort to rewrite the rules of global trade, but that requires other countries to sign off on new, more U.S.-friendly deals. And whether the “Tariff Man” can live up to his other promise — that he’s a master dealmaker — remains to be seen.

There’s a case to be made that Trump has the upper hand in these trade disputes because the United States buys more from China and Mexico than those countries buy from the United States. To put it another way, China and Mexico need Trump economically more than he needs them.

But that’s just the raw economic calculation. Trump is also facing a campaign for reelection in 2020, and he’s banking on a strong economy to propel him to victory. There are already signs that Trump’s trade policies are making the markets and economy jittery, and the pain is likely to escalate if he doesn’t make some deals by September.

“Play with fire and threaten the world with tariffs and sanctions, and someday you’re going to get burned,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The economy is clearly losing here. Not only are factories not coming back to America, the existing companies in the country are not churning out new jobs.”

Tariffs are taxes on the American people. So far, those costs have been modest. As Trump and top White House officials frequently point out, inflation (a good gauge of price increases across the economy) has remained low, which helps explain why there hasn’t been widespread public revolt over the tariffs, except among farmers and some manufacturers who have been hit the hardest.

But this could change in August and September for two key reasons. First, as he prepares new rounds of tariffs, Trump is dramatically ramping up the costs of the trade war on Americans making it more likely people will start to notice they are paying the tab for these fights.

Second, according to the National Retail Federation, August and September are the key months when U.S. retailers import goods for the holiday shopping period. If Trump’s tariffs remain in place then, it will be nearly impossible not to pass some — if not all — costs on to consumers for holiday season 2019.

“Shipments will start arriving in August, which is the start of the peak shipping season,” said Bethany Aronhalt, a National Retail Federation spokesperson.

Consider the numbers. At the start of the year Trump’s tariffs cost the typical family of four about $480 a year, according to calculations by the right leaning Tax Foundation and The Washington Post. Last month Trump increased tariffs on China, which lifted the cost for a typical family of four to $860 a year.

Trump says he plans to go ahead with new tariffs on Mexico next week, which would raise costs on the typical family to more than $1,000 -- whipping out the benefits of the GOP tax cuts for many in the middle class. If Trump moves forward with his other threat to put tariffs on all Chinese imports by the end of the summer, the cost would jump even higher — to more than $2,000 for a family of four.

Americans are increasingly likely to feel the strain of the trade war as they walk around stores. This September costs from Trump’s tariffs could easily be four times what they were at the same time a year ago.

Consumer spending is the backbone of the U.S. economy. Anything that spooks consumers and causes them to pull back on spending would be detrimental to the broader economy (and Trump’s re-election chances).

“For better or worse presidents own the economy,” said Phil Levy, a trade analyst and former member of President George W. Bush’s Council of Economic Advisers. “Trump will get the blame if things turn down.”

Trump is also likely to face growing backlash from farmers if he can’t lessen tensions with China by the fall. Most farmers eked by last year because they sold a lot of their crops early — before the tariffs went into effect and China fired back by buying less from U.S. farmers.

This year is different. Many farmers are in serious danger of not breaking even on their crop sales, in addition to facing pressure from “biblical” amounts of rain and flooding. Farmers need soybean and other crop prices to rise by harvest time in September and October.

"I got to make money. My bills keep coming just like everybody else’s,” said Phil Ramsey, a soybean farmer in of Shelbyville, Ind. “I was patient a year ago because I thought they would have this resolved in six months. Now we’re 14 months in. I don’t know if they are any closer today than they were a year ago.”

The White House is sending billions in aid to farmers and promising billions more, and soybean farmers say they haven’t turned on Trump, but as one Iowa farmer put it, sentiment has “shifted from positive to neutral” on the president. They want resolution soon.

Trump cast himself as a dealmaker, but so far, he has made only one substantial trade deal, a tweak of the North American Free Trade Agreement (NAFTA), which is now on the verge of failing as many Congress are upset with Trump’s latest moves against Mexico. Congress has to approve the new NAFTA.

“Lots of the president’s supporters cling to the idea that Trump is a savvy negotiator. I’m not sure we’ve seen any evidence of that so far,” Levy said. “Maybe he’s not Mr. Art of the Deal. That reassessment could be hard to bounce back from.”


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