President Donald Trump in 2018 infamously proclaimed that “trade wars are good, and easy to win.”
He would be hard pressed to find many economic experts to agree with him.
The president is unilaterally waging tariff wars on multiple fronts on a global scale. Trump has incrementally raised tariffs on Chinese goods since.
In May 2019, tariffs on Chinese goods worth about $200 billion was raised to 25%. The tariffs previously sat at 10%. These tariffs will affect about half of all Chinese goods exported to the United States.
Meanwhile, China is imposing its own set of retaliatory tariffs. On June 1, 2019, China began imposing 25% tariffs on about 5,000 American retail products at a reported value of $60 billion.
President Trump has also threatened tariffs against Canada and America’s European allies in the recent past. In recent weeks, the president has threatened a 5% tariff against Mexico.
American businesses — not China — bear the burden of tariffs. That cost is then passed onto American consumers.
According to some economic analysts, if the tariff wars don’t deescalate soon the entire world could end up in a recession.
Potential cost
Morgan Stanley believes that the American-Sino tariff war could plunge the world’s economy into a recession in less than “three quarters.” The trigger could be the Trump’s insistence on raising tariffs on China.
Chetan Ahya, Morgan Stanley’s chief economist, said that investor underestimation of the seriousness of the situation adds to the problem.
“Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook,” wrote Ahya.
Analysts with the research firm Oxford Economics agree with Ahya’s findings. The tariff war may cost the American economy more than $62 billion in 2020.
Meanwhile, the world’s economy may suffer a $360 billion hit.
To put such figures in an appreciable perspective, a recent report by the Federal Reserve of New York found that the tariff war will cost every American household about $831.
“No one wins trade wars, not even the bystanders,” said Gregory Daco, an economist at Oxford Economics.
