Despite increasingly aggressive warnings from U.S. businesses about the dangers of President Trump’s tariffs on Chinese products, the broader U.S. economy seems largely unfazed.
Corporate earnings grew 16 percent to $2 trillion in the three months through June 30, the most since 2015, according to data from the Department of Commerce. While consumer sentiment dipped slightly in August, unemployment held steady at 3.9 percent, the lowest in over a decade.
The Dow Jones Industrial Average and S&P 500, two of the most widely followed U.S. market gauges, both touched record highs on Thursday, just days after Trump announced tariffs on an additional $200 billion in Chinese goods, bringing the total amount to $250 billion. Experts attribute the surge to the administration’s decision to levy a 10 percent tariff on the new list of products, as opposed to the 25 percent under consideration.
[Related: Chamber cheers: It’s Trump’s economy]
In response to the markets, Trump tweeted “Congratulations USA!”
Meanwhile, the Chinese economy continues to slow down, largely as a result of a campaign by President Xi Jinping to curb the country’s rapid credit expansion and investment.
“The two economies were heading in different directions as the year began,” and the trade war created additional problems for the Chinese, said David Dollar, senior fellow at the Brookings Institution’s John L. Thornton China Center. “For the U.S., the economy was arguably heading towards too rapid growth, so it so far has not been such a big problem.”
That’s likely to bolster Trump’s confidence in his tariffs, according to Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research.
“The Trump administration sees it as a battle with China, and if their markets are going down and ours are going up, we’re winning,” he said in a recent interview.
While economists expect the strong growth to continue through remainder of the year, it may begin to abate in 2019 if neither Washington nor Beijing backs down.
It’s a catch-22 for the U.S. business community. Companies are pleased that the administration is taking an aggressive stance against what they view as China’s rapacious business practices but complain that tariffs are the wrong approach.
Conversely, the White House views the escalating trade war as necessary to pressure Beijing into significant concessions in a bilateral trade deal. While companies reject the new levies and continually warn of the impact of the so-called consumer tax, executives privately say they can accept the short-term pain.
“Everyone seems to believe we need better trade policies. They just are a little uncomfortable about the process,” Frederick said. “I’ve heard it described as ‘I’m willing to take a black eye on this, but I don’t want to take a broken arm.’”
The public rhetoric is a different story. Some groups, like the Information Technology Industry Council, have threatened legal action if the administration imposes levies on all Chinese imports.
The U.S. Chamber of Commerce has also waged a strong opposition campaign against the tariffs, touting research that shows the impact of the trade skirmish in each state. While the resistance has done little to influence the Trump administration, the business group’s top executive thinks it’s only a matter of time.
“Sometimes government moves slowly,” Tom Donohue told reporters on Wednesday. “We’ll get there on this issue. We’re finally getting other people to join in this effort in a broader basis than we have in the past.”
Some sectors like manufacturing and the automotive industry are struggling more than others with the additional costs from the duties.
“There’s a lot of harm there for manufacturers, which have really borne the brunt so far of the U.S. tariffs and are facing a lot of the retaliation that China has put into place,” said Linda Dempsey, vice president of international economic affairs policy at the National Association of Manufacturers.
The group is pushing the White House to resolve the dispute more quickly and reach a bilateral trade deal with China. Dempsey said there are many opportunities for leaders of the two countries to meet in the coming months.
“The only alternative is the two sides are not talking, are not actually negotiating a deal that both sides could agree [and] unfortunately the further escalation of tariffs,” she said. “Going into the fall and winter, and certainty into early next year, we’re going to see increasing concerns.”
