China Trade War May End If Recession Looming, or May Endure Past 2020, Panelists Say
Many things about the U.S.-China trade war have not turned out as experts expected, panelists said at the Washington International Trade Association Oct. 2. Chad Bown, a trade economist at the Peterson Institute for International Economics and former White House economist, said that 18 months ago, people would have not expected there to be 15 percent to 30 percent tariffs on more than half of Chinese imports, with nearly all the rest slated for tariffs by December, and yet, the economy is doing OK. "Markets haven't panicked," he said. But Bown said he's not that surprised that the country hasn't seen a massive effect from the trade war, since the tariffs in place the longest were on inputs, and because, compared to the size of the entire economy, "we don't actually trade all that much."
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Similarly, the government's prediction that China could not stop buying U.S. soybeans because there isn't enough supply in South America to replace them, and because it would drive food prices sky-high, didn't turn out to be true. There is high food inflation in China, but it still basically stopped buying U.S. soybeans.
Joe Glauber, a senior research fellow at the International Food Policy Research Institute, said there also wasn't any political price to be paid by the president for vaporizing about a quarter of soybean sales. That's because the U.S. Department of Agriculture distributed $28 billion to farmers -- and because of those payments, farm income ending up growing, not shrinking. "It seems to me a real moral hazard problem," Glauber said. Without the commodity payments, farmers would be complaining bitterly about the tariffs. "To reward one sector just promotes bad policy," he said. Glauber said he just saw a poll the day before that said 76 percent of farmers think the president is going in the right direction. He said that's not all about payments, that farmers have also "been very, very happy" about environmental rollbacks that affect their land.
Bown and CompTIA Executive Vice President Cinnamon Rogers said they are anxious about news reports that the administration might remove Chinese companies from the U.S. stock exchange, and limit U.S. investments in China. "I don't think it's imminent," Bown said, but he finds it worrisome.
One of the wild cards in the status of trade negotiations is whether China will continue to exercise restraint during the democracy protests in Hong Kong. Jude Blanchette, the Freeman Chair in China Studies at the Center for Strategic and International Studies, said that "if Hong Kong goes sideways ... there will be no U.S.-China trade deal."
Center for a New American Security CEO Richard Fontaine said that even without a massacre in Hong Kong, President Donald Trump doesn't have an incentive to sign a deal. As long as he's delaying, he can argue that Democrats running for president would be weaker than he is, Fontaine said. But if he reaches a deal, that gives critics something to shoot at. However, Fontaine said, if the economy weakens, he thinks Trump might announce a deal next summer.