Thread on Trump, trade wars and midterms: Lots of people understandably interested in what the election result might mean for the escalating trade war/US protectionism. Here's what some economists/trade experts/politicos reckon 1/
Firstly, recent headline decisions on trade were made using executive powers. Trade with foreign nations is theoretically in Congress’ scope but much of that power has been ceded to the exec. Has little recourse to stop say tariffs based on national security concerns 2/
Backing/opposition to admins’ trade policy so far has been a matter of ‘parochial issues rather than partisan issues’ says one econ. Dems might still have some ties to lab unions, some Reps back free trade, but it’s really about who loses/wins economically in a pol’s backyard 3/
So basically don’t expect a breakthrough.The landscape hasn’t changed and the trade war is here. Auto tariffs less of a priority now the new Nafta (USMCA) is on the cards. But ramping up tensions with China is still largely odds on - and that’s where things get...interesting 4/
The real sting from the trade war will come in January for the US, if it raises the 10pc tariffs on $200bn worth of Chinese goods to 25pc. That’s when consumers get truly hit, and input prices for factories start to really crank up inflation. 5/
That’s a problem for 2020. The US economy is widely expected to slow by the end of 2019. The Fed is set to raise interest rates once more this year, and three times next. Higher inflation, having splurged on tax cuts, could get uncomfortable politically. 6/
Trump will start going for the Fed even harder than so far in the run up to the 2020 election. Powell will be his fall guy as the trade war bites. Congress might start to try and ramp up efforts to address impact of tariffs - that won’t stop them hitting econ if ramped up 7/
So the only way through is pain for the US economy, unless the Trump administration has a massive change of heart re:Trade policy and China. Trump supporters have already shown they’ll take short term pain in order to buy into project protectionism. 8/
The question is what that pain threshold will be, and if the Dems try to exploit it effectively ahead of the 2020 election. That’s when having more Dem clout in Congress could count. If any and all legislation is made a proxy war for Trump’s trade policy. ENDS.
