General

Potential repercussions for US-China trade war on US economy, 2020 presidential elections

WASHINGTON, August has witnessed a new trajectory in the trade war between Washington and Beijin with US President Donald Trump’s administration imposition of new tariffs on China effective September and then postponing their implementation until December of this year amid Trump and his team’s denial of any negative impact on the US economy, which lies at the core of Trump’s 2020 electoral program.

The US President’s focus on economy as a pivotal element in his current and future project and program as well as an essential attracter for the US voter, is evident in many instances, occasions and statements.

It was clearly manifested in the State of the Union address that Trump delivered in February of this year as he shed light on his administration’s economic accomplishments especially in terms of jobs’ increase.

He said: “the state of our Union is strong. An economic miracle is taking place in the US.” However, the debate over whether the US-China war has had negative repercussions on the US economy escalated when the Dow Jones witnessed last Wednesday its worst day of 2019 last Wednesday, dropping about 800 points, or about three percent.

On August nine, Trump declared that “we are not going to do business with (The Chinese Telecoms company) Huawei” and that his administration is “not ready to make a deal” with China. Nonetheless, he stressed that there was an “open dialogue” between the two countries and that discussions were underway on whether to hold a US-China meeting in September. Trump also asserted that “China has had their worst year in 35 years now” whereas, the economic situation in the US is “great.” On August 13, the US President said that he received a “very good and productive call with China,” reiterating his affirmation regarding the strength of the US economy and that “the stock market continues to do very well. We have very, very strong numbers.” Trump also pointed out that the “Chinese said they are going to buy farm products” from the US. The statement can be regarded as an alleviation of the farmer’s concerns that escalated after Chinese Ministry of Commerce’s declaration that it has decided to suspend US agricultural products’ purchases in response to Trump’s new 10 percent tariffs on USD 300 billion of Chinese goods.

China considered the US decision that was announced on August first as “a serious violation of the meeting between the heads of state of China and the US” held last June in Osaka, Japan.

On the same day, Trump said he is hopeful that clashes in Hong Kong between anti-government protesters and armed security forces end peacefully and “I hope it works out for everybody including China.” In a Tweet, he denied any US involvement in the incidents. He tweeted: “Many are blaming me, and the US for the problems going on in Hong Kong. I can’t imagine why?”. However, he has not hinted at any link between the resolution of Hong Kong and the US deal with until Sunday when he told reporters that he would “like to see Hong Kong worked out in a very humanitarian fashion.I think it would be very good for the trade deal that we are talking about.” On August 13 as well, the US President warned that the US “would leave World Trade Organization if we have to” saying that China “ripped off our country for years, and with our money and World Trade Organization backing. And then they took advantage of the rules of the World Trade Organization.” In this regard, Trump said in a memorandum he issued on July 26 that the US States Trade Representative (USTR) shall “use all available means” to secure changes at the WTO that would “prevent self-declared developing countries from availing themselves of flexibilities in WTO rules and negotiations that are not justified by appropriate economic and other indicators.” Moreover, Trump’s emphasis on the strength of the US economy culminated last Wednesday when Dow recorded the sharp drop which was interpreted by economic experts as an indicator of a major recession and impacted the stock market. The decline in Dow was seen as an “inverted yield curve,” which occurs when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds. This type of yield curve is considered to be a predictor of economic recession.

As a reaction to the figures and their possible repercussions, Trump stressed that the US is profiting from the tariffs on China and the problem is with the policies of the Federal Reserve.

Trump said in a tweet: “We are winning, big time, against China. Companies and jobs are fleeing. Prices to us have not gone up, and in some cases, have come down. Our problem is with the Fed. Raised too much and too fast. Now too slow to cut.” In another tweet, he asserted that “as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game.” In this regard, senior US President advisors defended his administration’s economic policies including the tariffs on China and denied any negative impact of those policies on the US economy. White House Economic Adviser Larry Kudlow said Sunday in an interview with FOX News: “I don’t see a recession in the horizon.” Kudlow asserted “I do not see a recession at all,” noting that “the Trump pro-growth program, which I believe has been succeeding lower tax rates, bid rollback of regulations, energy opening, trade reform.” He maintained that the current administration wants “an incentive-oriented supply-side economy, providing opportunities for everybody across the board.” Trump’s economic advisor also stressed that “consumers are working. The employment numbers are terrific. They are working at much higher wages, they’re spending. Interestingly, they are saving, even while their spending.” Kudlow noted that “at the end of the week, a lot of the Wall Street firms have been marking up their economic growth forecasts.” He added that he thinks “we are in pretty good shape,” calling for not being “afraid of optimism,” and denouncing the rhetoric of “pessimism, recession.” For his part, White House Trade Advisor Peter Navarro denied the occurrence of an inverted yield curve.

In an interview with CNN on Sunday, he maintained that “technically we did not have a yield curve inversion”.

He said: “an inverted yield curve requires a big spread before short and long,” asserting that “all we have had is a flat curve.” “In this case, the flat curve is actually the result of a very strong Trump economy,” Navarro said categorically. Trump’s trade advisor also told ABC News on Sunday: “We have the strongest economy in the world.” In addition, Trump told reporters on Sunday ahead of his departure from New Jersey to the White House that the US economy is “doing very well. We have the strongest economy, by far, in the world. The tariffs (on China) have cost nothing, in my opinion, or certainly very little.” The US President reiterated that “China is eating the tariffs because of monetary manipulation. They are pouring a lot of money into their country because they do not want to lose jobs. They are losing.” Trump added that “they lost over two million jobs in a short period of time. And they want to make a deal; we will see what happens. But they definitely want to make a deal.” He also reasserted that “I do not want to do business at all, because it is a national security threat.” It is certain that Trump administration’s success in proving that all sides of its economic policies including those it is adopting towards China have a positive impact on the US economy would have a tremendous impact on US President Donald Trump’s chances in winning the upcoming Presidential elections.

This interprets Trump and his economic team’s keenness on stressing the positive outcomes of his economic policies.

Source: Kuwait News Agency