While the trade war with China is getting more radical every day, and the agreement is still nowhere in sight, many wonder how the whole situation will reflect on the upcoming elections in 2020.
Is There an End to the Trade War with China?
Donald Trump obsessively keeps track of two things of utter importance to him. The first is the fluctuation on the US stock market, and the other one is the approval rating of his actions. Since the stock market recorded a plunge of the Dow Jones industrial average of about 2.7%, and this was followed by China increasing import taxes for 25%, the President is clearly unhappy about the current situation. He expressed his feelings in a series of anger-infused tweets on Monday.
You see, Trump loves seeing the stock market bloom since he considers this to be a clear sign of success, while at the same time, he enjoys exercising his power on the international scene. He believes that winning the trade war with China through constantly raising duties and forcing them to back down and give concessions will bring him considerable leverage and help him win the 2020 elections.
But these two interrelated issues may cost him the re-election if America and China don’t reach an agreement any time soon; if he stays firm in imposing 25% tariff on all products from China, this may have devastating effects on the American economy especially in agricultural states. Also, it may additionally hit the stock market which is already shaken.
Economic experts hope that both leaders would realize that stubbornly keeping a stand without the will to compromise is equally harmful to both American and Chinese economies. However, their hopes may be in vain It seems that, unfortunately, both presidents have turned this trade issue into a political one with much deeper roots. And this shift is never good news for business people.
Even though Trump is bragging about the favorable position of America in this conflict as well as the results of his radical tax policy towards China that, according to him, is filling the budget, the situation on the field seems to be strikingly different. Especially in Iowa and Wisconsin, the agriculture-oriented states that have already suffered because of increased taxes on soya bean, pork, and corn. These states are also Trump’s fervent supporters, and if things don’t improve any time soon, this situation can also reflect on the outcome of the upcoming elections.
There are conflicting attitudes about this issue even in the White House. While some of Trump’s advisors prefer the hardcore approach and advocate pushing China’s limits until they give in, some milder voices suggest that a compromise with China has to be reached to avoid disastrous consequences that may hit both countries’ economies.
Although Trump boasted on Twitter that China fills the US budget by paying these increased taxes directly, American businesses and consumers are the ones that actually pay them.
After China hit back, imposing additional 25% levy on goods imported from America, Trump said that America was in a better position compared to China because China relies much more on importing American goods than vice versa. This means China would suffer more from this tit-for-tat policy and that negative effects on the domestic economy wouldn’t be that severe.
The US administration has filed a proposal for imposing an additional 25% tax on 325 billion worth of imported China products as a retaliation measure, so it is obvious that the end is nowhere in sight when this trade war is in question.
These last moves of the leaders of two economic superpowers have completely shattered the hopes of business people and experts that this prolonged conflict will ever end. They believe that even if some agreement is reached, it would not seal the deal. In other words, they believe that Trump would reopen this issue and start the war all over again to score some political points. He already profits from the situation. He posted that GDP for the first quartal was 3.2%, emphasizing that this was a result of his China tax policy.
People from Trump’s party claim that the President doesn’t fear that a frozen trade conflict with China may cause severe harm to the American stock market and economy. In addition, they say that other economic parameters have improved considerably over the past two years. For example, the unemployment rate is at the “generation minimum” while at the same time, wages got higher.
They also believe that Trump won’t lose the votes of the agricultural states that have already been hit hard by his tax measures because they are patriots who understand that their president works in the country’s best interest.
The next chapter of this saga will be written at the G-20 summit in Japan next month where the two leaders will meet and try to find a way out of the dead-end street they got stuck in.