This week brings a flurry of activity watched closely in Washington, with the government re-opening after the longest shutdown in history. It also brings a big earnings week with 113 companies on the S&P 500 and nearly half of the Dow Jones Industrial Average components reporting quarterly results and trade talks between the U.S. and China (a point of tension that has been referenced in many of this month’s earnings notices) kicking off anew in D.C.
The disappointed report from the Illinois-based Caterpillar at the beginning of the week (a company that is considered a harbinger for the global economy) can be expected to be part of a broader trend of dour reports this week citing the tensions between the world’s two largest economies as a major source of frustration for their businesses. But will it change President Trump’s mind about his unorthodox trade practices? Many of Trump’s defenders in and outside the administration (and Trump himself) have been quick to eschew corporate America’s warnings about the impact the trade war is having on its bottom line. However, it would be a mistake for policymakers not to acknowledge the economic ecosystem the administration’s trade policies have fostered, and whether the policy goals they are pursing are worse than the sacrifice they require.
In fact, the Trump administration seems to have fallen short in pursuit of its own policy goals. First as a candidate and then as president, Trump has consistently cited the trade deficit as a defect of current trade practices, expressing a desire to eliminate the surplus goods Americans buy from China. Given that Americans bought $505 billion worth of goods from China in 2017, it is obvious that a direct consequence of satisfying this objective results in downward pressure on Chinese output. As such, when corporations cite a slowdown in the Chinese economy as a cause of concern for their business, it is a reflection of an explicit goal Trump has pursued in negotiations with the Chinese.
As the second largest economy in the world, China contributes heavily not just to goods bought in the U.S. but also raw materials American companies use to produce and sell their products in the United States and abroad. However, as is revealed in a recent report released by the National Taxpayers Union Foundation on the impact the Trump trade agenda is having on the U.S. economy, the administration’s trade practices have increased the cost of doing business here:
And that much-maligned trade deficit with China? It reached a record high last year. So while potentially narrowing the economic expansion here in the United States, the administration has also failed in achieving one of its main objectives.
While the trade deficit may have increased, the cost of products from industries targeted by tariffs has risen as well. The first victims of the administration’s capricious tariff moves, washing machines, became 17 percent more expensive after the administration restricted washing machine imports in early 2017. Similarly, the typical American is now faced with nearly $1,000 in higher costs for solar panel installations thanks to tariffs extended to that industry last year.
Corporate America is a convenient villain for politicians of all shapes and sizes, but the companies warning of trade pressures have large footprints in communities across the country, where the real impact of short-sighted trade policies comes to bear. Because tens of millions of Americans work in jobs sustained by trade, all eyes will be on Washington this week as U.S.-China negotiations speed up again.
As Chinese Vice Premier Liu He comes to town to continue negotiations with the U.S. delegation led by U.S. Trade Representative Robert Lighthizer, they are up against a strict deadline of March 1 when tariffs already in effect on Chinese imports are scheduled to rise from 10 to 25 percent. Liu is known as a reformer, so this week augurs the best chance for signs of progress in negotiations. If none materializes, on top of a sour week for corporate earnings, the stock market will likely suffer another depressing sell-off.
Trump is expected to attend at least one meeting with the Chinese vice premier this week. As a close watcher of equities as a gauge on the economy under his administration, could that further motivate Trump to make a deal with China? If nothing else, perhaps the president could agree to extending the deadline for negotiations beyond March 1, which would relieve some of the pressure on the markets as that timeline narrows. Ultimately, it will be up to the president to determine what victory looks like in these discussions. And right now, there isn’t much time left for that.
Mattie Duppler (@MDuppler) is a contributor to the Washington Examiner‘s Beltway Confidential blog. She is the senior fellow for fiscal policy at the National Taxpayers Union. She’s also president of Forward Strategies, a strategic consulting firm.
