Trade War a Political Coup But Economic Zero, Says RSA Analyst

The trade war with China has been a big political success for President Donald Trump, although it’s a zero on the economic accounting ledger, a senior equity analyst for the Retirement Systems of Alabama told the RSA’s board of directors in a quarterly economic update released on February 25.

Don’t look for any Democratic nominee for president to challenge the president’s trade war, RSA analyst Michael McNair wrote in his report. Trump’s policy was a big factor in his 2014 victory, and Democrats got the message, says McNair.

“Donald Trump’s trade protectionist message resonated in key battleground states throughout the Midwest. Hillary Clinton’s fatal mistake was allowing Trump to siphon these historically left-leaning voters with the traditionally democratic platform of trade protection. The Democratic nominee in 2020 will not make the same mistake.,” writes McNair. “They will match Trump’s protectionist rhetoric in an attempt to neutralize Trump’s message with these crucial swing voters in a way that Hillary Clinton failed to in 2016. For that reason trade friction with China, and Europe is likely to pick-up after the election regardless of who wins the presidency.”

Politics aside, there have been no benefits to the U.S. economy from Trump’s tariffs, says McNair. “Tariffs will not reverse the U.S. trade deficit.”

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“Ironically, tariffs are more likely to increase the U.S. trade deficit by increasing risk-aversion in the global financial system,” writes McNair. “Restructuring trade deals and placing tariffs on our trading partner’s exports will not reduce the U.S.’ trade deficit as long as those countries are exporting capital to the U.S.”

What’s more, he says, a trade deficit with any one country is not the problem in today’s economy with multiple supply lines. “Bilateral trade balances are irrelevant in today’s global economy. They tell us nothing about whether a country is adding to or subtracting from U.S. growth. A country’s overall trade balance is the appropriate measure to use in assessing a country’s impact on global trade.”

Bottom line, says McNair: “President Trump’s tariffs have been successful in reducing the U.S. trade deficit with China; yet, the aggregate U.S. trade deficit increased in 2019.”

And don’t expect any benefits from the recent trade agreement with China, even if it progresses beyond the tentative first phase. “The economic impact of a trade deal with China will be negligible, because it will only impact the U.S.’ bilateral trade deficit with China and not the aggregate U.S. trade deficit.”

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