America v China: why the trade war won’t end soon | The Economist
Trump administration officials say the first phase of the deal, signed Wednesday, will boost growth. Many economists’ forecasts are less optimistic.
Cabinet Secretaries and White House officials predicted that President Trump’s initial trade agreement with China and his revised deal with Mexico and Canada, slated for final adoption this week, will lead to double economic spurts..
But third-party forecasters, including some economists who, in particular, welcomed the agreement with China, predicted much more modest gains, and in some cases no gains at all..
«We now have the United States, which will host the Senate this week, Treasury Secretary Steven Mnuchin told CNBC on Wednesday, citing an agreement between the United States, Mexico and Canada. – We have the Chinese first phase, there is an agreement with Japan, an agreement with Korea. All of this will have a significant positive impact on the 2020 economy.».
He and other officials have every reason to hope that Trump is ready for re-election, and the economy appears to have grown at just over 2 percent in 2019, a fall since 2018 and well above the administration’s growth forecasts above 3 percent. in a year.
The administration has yet to release an official forecast for 2020 growth. On Sunday, Mnuchin said he expects the economy to grow 2.5 to 3 percent this year, although he warned that growth could fall to the lower end of that range due to problems at aerospace giant Boeing..
Other forecasts were less optimistic. The World Bank said last week that it expects the US economy to grow 1.8 percent this year. The first phase of trade deals with China and the United States. not expected to have much impact on pessimistic forecasts.
«I have not changed my forecast yet and do not expect it to be significant», – said Rubila Farooqi, the US chief economist for high frequency economics. She predicts the country’s economy will grow 1.8 percent this year..
China agreement, she said, «is a step in the right direction, but trade duties remain in place and I’m not sure if they will inevitably be canceled».
The first phase of the agreement could affect the growth of the US economy in two ways, and administration officials expect both to be achieved..
First, the deal requires China to begin purchasing US $ 200 billion in grains and other exported goods and services. These purchases should boost United States exports to China, which, other things being equal, will boost growth.
Second, and perhaps more importantly, administration officials appear to be looking forward to an agreement to resume business investment in the United States, which has declined in recent quarters after a sharp rise in the first half of 2018. Uncertainty sowed by Trump and the Chinese and reciprocal trade duties are mainly to blame for this slowdown.
The bullish argument for an agreement with China is that it will ease that uncertainty. Some economists say the US could do the same. For months, administration officials have been touting a study by the US International Trade Commission that predicted a North American trade deal could boost growth 0.35 percent, largely by reducing uncertainty over digital services trade..
Andrew Hunter, a senior US economist at Capital Economics, endorsed this estimate on Tuesday. The gap that opened last year between investment and corporate earnings suggests that uncertainty over trade duties has forced firms to delay investment plans, he writes in a research note. And he adds: «The signed US deal and the elimination of the threat of further trade duties on Chinese goods, it would seem, should lead to the disappearance of the braking».
Many economists praised the agreements to reduce uncertainty, but few raised their growth forecasts because of them. This is due in part to the fact that, they said, there are still a large number of tariffs in the agreements, especially with regard to China, as well as some steel and aluminum products, solar panels and washing machines imported from other countries..
They also noted that Trump fought his trade wars on fronts far beyond North America and China. New trade battles loom this year, including between the United States and France over France’s push to impose a new tax that is raining down on American tech giants such as Google and Amazon..
Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said the phase one agreement was «good news for the US and the world economy». But according to her, «For businesses using China as a business platform, significant uncertainty remains regarding products targeted for the US market, and we will continue to see the impact on slower investment and higher business costs».
Lewis Alexander, chief United States economist at Nomura, revised his 2020 growth forecast by 0.1 percentage points in late fall to reflect the suspension of a new round of tariffs, which was due to take effect in December. He said he does not expect significant benefits from the business investment..
Some economists have expressed optimism that a Phase 2 deal with China, which would remove more trade duties – combined with a prolonged trade peace on other fronts – could bring more benefits to the economy. However, administration officials appear to have ruled out such a deal until November..
«Yes, there is some risk to our forecast if things go better than we expect, ”said Alexander. “But overall, the direct impact of changes in trade duties is small, and to really change the tone, much of US-China relations would have to be handled in a way that seems lasting. It’s hard to see how this can be achieved in an election year».