EconoMatters

Trump Threatens China

Will Trump unleash a new trade war that could seriously impede the post-corona recovery?

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Takeaways


  • A US threat to further damage the Chinese, US and global economy through new tariffs could be counterproductive.
  • For Trump, weakening the US economic recovery and raising uncertainty does not sound like an election winner.
  • While the popularity of many leaders in the advanced world has surged in the last two months, Donald Trump has not had a good coronavirus crisis.
  • Any discussion in the US why it became the third epicenter of the pandemic, after China and Europe, leads to an unpleasant answer for Donald Trump.

Is this the weirdest sign of a potential return to less unusual times? U.S. President Donald Trump ruffled feathers last Friday with new threats against China.

Beijing indeed has serious questions to answer about its initial response to a virus that has now caused the worst global recession in peacetime. Expect more arguments between China and other countries over time.

But a U.S. threat to further damage the Chinese, U.S. and global economy through new tariffs could be counterproductive.

Shortcomings exposed

Trump has not had a good crisis. The popularity of many leaders in the advanced world has surged in the last two months as citizens have rallied around those who are seen as having responded competently.

Trump enjoyed only a short-lived and shallow bounce. According to the bets placed on electionbettingodds, his probability of being re-elected on November 3 stands at 49.1%, back to where it was on December 29.

Going forward, the domestic discussion in the United States may turn ever more to the question why the United States became the third epicenter of the pandemic after China and Europe.

This occurred although the country should have been warned by events in Italy that the virus is a serious threat to all advanced countries — and not just to East Asia.

Trump’s options

A noisy conflict with China may deflect attention away from the issue. Taking a hard line against China in general seems to have widespread support in the United States. However, a renewed trade war may not be a really appealing option for Trump.

Serious new U.S. tariffs would have to fall mostly on consumer goods. Also, an even more restrained economic recovery and more elevated uncertainty among households and businesses does not sound like an election winner.

Conclusion

Trump’s behavior remains a global risk. It is likely that, despite occasional noises, he will not unleash a new trade war that could seriously impede the post-corona recovery.

Even if Trump were to stoke serious new trade tensions, they would probably be less disruptive than in 2019. They would no longer come as such a shocking surprise.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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