Trump’s trade war is poised for a Pyrrhic victory

Chinese steelworker directs crane to pick up coils of wire in Yichang city, Hubei province
The Trump administration can slap tariffs on Chinese steel, but then it must figure out who buys the Treasuries to finance its growing budget deficit and public debt (source: dpa)
  • To reduce its trade deficit, the U.S. must trim its fiscal deficit or find new bond buyers
  • Drastic spending cuts or more quantitative easing from the Fed is quite unlikely
  • If domestic investors don’t buy more Treasuries, the trade deficit will widen again

In January 2018, President Donald Trump’s administration introduced new import tariffs on solar panels and washing machines. This month, it was the turn of steel and aluminum imports. Next to be targeted may not be industries but countries that enjoy a trade surplus with the United States, especially China.

Of course, President Trump is right to complain about countries that use trade barriers against American exports – including Canada, China and the members of the European Union. Likewise, he is probably right to argue that many U.S. partners have failed to live up to their commitments. Frequent examples mentioned by the American president are Mexico’s ineffective efforts to fight drug trafficking and low military spending by NATO members. Mr. Trump also has a point when he claims that international bodies such as the World Trade Organization lack the means and possibly the political willpower to enforce the rules of the game.

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