Why President Trump’s “Trade War” With China Might Be Working Too Well

“China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!” – President Donald J. Trump

Little Rock, Arkansas – Much has been written and will continue to be written about President Trump’s “trade war” with China, but one thing is becoming clear, it’s working… maybe too well.

When the Office of the United States Trade Representative (USTR) imposed more than $250 billion in tariffs last year on a host of Chinese imports such as steel and aluminum, the hope was the new sanctions would hurt the Chinese economy enough to bring them to the negotiating table. Many economists have been and remain skeptical.

 

However, on Monday China released its GDP numbers for 2018 showing the slowest annual growth rate in nearly three decades, at 6.6%. The news was even worse for global investors as economists recently polled by Rueters expected a GDP growth rate of at least 6.8%.

President Trump quickly took to Twitter to send a message to Chinese negotiators and the naysayers writing,

“China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!”

 

 

The timing of President Trump’s tweet is certainly not coincidental as the Wall Street Journal reported last week U.S. negotiators are mulling “ratcheting back tariffs on Chinese imports” as a way to calm global markets, while giving leaders in Beijing an incentive to make deeper trade concessions in negotiations with the U.S.

Chinese leaders moved to downplay the impact of U.S. tariffs on the world’s second largest economy. Chinese statistics bureau chief Ning Jizhe acknowledged to reporters on Monday that his country’s trade dispute with the U.S. has affected the domestic economy, but the impact was manageable, Reuters reported.

Making investors even more nervous is the fact that the U.S. is set to raise tariffs from 10% to 25% on $200 billion worth of Chinese goods on March 1, 2019, unless an agreement can be reached. China’s top trade negotiator, Vice Premier Liu He, will visit Washington, D.C., on Jan. 30 for two days of talks with U.S. trade representative Robert Lighthizer.

In the meantime, analysts are expecting Beijing to roll out further stimulus and approve further cuts to the reserve requirement ratio — the amount of cash that banks have to hold as reserves.

Even still, citing the unresolved trade conflict between the U.S. and China, the IMF this week said it cut its global growth forecast for 2019 to 3.5% from 3.7%.

 

“Recession In The Next Few Years”

Though President Trump’s hardball trade tactics are having the desired negative impact on the Chinese economy, those negative effects are having real economic consequences, at least in the short-term. In a CNBC report out this week, Mark Zandi, chief economist at Moody’s Analytics, said the tenuous negotiations with China shows “how fragile things are” in the economy.

He told CNBC, “If we don’t have recession this year, the odds are high that we’ll have one in the next few years.” He, like a growing number of analysts, predicted a slowdown.

However, he expressed confidence in U.S. leadership to navigate through it successfully. “As the economy weakens, political pressures will intensify and the policy makers will respond sufficiently to keep the train on the tracks,” Zandi said.

U.S. Trucking Feeling The Negative Impacts With All Eyes On March 1 Deadline

Despite new for-hire truck tonnage data for 2018 showing a 6.6% growth, the highest such growth of any year since 1998, American Trucking Associations (ATA) chief economist, Bob Costello warned, “there is evidence that the industry and economy is moderating as tonnage fell a combined total of 5.6% in October and November after hitting an all-time high in October.”

Costello’s warnings have been echoed by other trucking industry analysts in recent weeks. Though most trucking analysts are not predicting a recession, they are predicting a slowdown as freight orders are predicted to grow 2-3% this year which is about half of the 5% growth we experienced in 2018.

Perhaps if a favorable trade deal between the U.S. and China can be reached between now and the looming March 1, 2019, deadline, it will spur more economic confidence. Trucking would certainly be a beneficiary of such an historic agreement.

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