Economists and investors are nervous as the potential trade war between China and the United States threatens to quickly jump into hyperdrive. On Wednesday, retaliating to new U.S.-imposed tariffs on steel and aluminum, the Chinese government produced a list of $50 billion worth of U.S. goods that will soon be subject to new import taxes. The list includes soybeans and small aircraft and China is vowing to tax the entirety of the 106-product list with a whopping 25% increase in tariffs. The proposal remains just that for now, but Beijing is threatening to implement it into policy if President Trump goes through with plans to raise duties on Chinese exports.
While White House economists assure the press that a trade war, to the extent that this becomes one, will do enough for American manufacturing and jobs to offset any market uncertainty, not everyone is so confident. Yes, because it’s Trump, there are a lot of automatic naysayers in the liberal media. But just as everything Trump does is not OMG THE WORST THING EVER, not everything he does gets an automatic golden pass, either. We have a major trade imbalance with many countries, and there are many ways in which Beijing is taking advantage of us. But that doesn’t mean we can survive an intense trade war without doing immeasurable harm to the domestic (and global) economy.
Nonetheless, there’s a lot of truth to what Trump tweeted on Wednesday. “We are not in a trade war with China,” he wrote. “That war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”
Still, the domestic and global markets are highly resistant to big changes in the economic flow, so don’t be surprised if the Dow Jones takes a sharp dip over the coming days and weeks. There are already plenty of signs that we’re in for a bear market, and trade uncertainty isn’t going to do anything to stave off the corrections. Hopefully, a temporary swing doesn’t foretell a worldwide panic.
We have a feeling, though, that Trump is going into this with a much clearer head than some of his detractors think. He knows the dangers of upsetting global trade, and even though this is an issue he has railed about for thirty years, he isn’t barreling forward like a bull in a china shop. At some point, we have to trust that Trump actually knows what he’s doing. Change is scary, especially if you’ve got a lot of money locked up on Wall Street, but change is also long overdue. At the end of the day, China is going to recognize that in a straight-up trade war with the U.S., they will only hurt themselves.