RISK: GLOBAL TR ADE WAR BREAKS OUT Several events have heightened fears of a global trade war: the U.S. placing tariffs on imported steel and aluminum, European threats to retaliate if not exempted from the tariffs, President Trump proposing tariffs on imports from China, China proposing tariffs on U.S. imports, the potential failure of NAFTA talks and President Trump's tweet that "trade wars are good and easy to win.” On the campaign trail, President Trump promised to “get tough on trade.” Now he’s following through on that promise. Among the president’s most strongly held beliefs is that the U.S. has suffered because of free trade. His statement that “trade wars are winnable” suggests he will give no quarter in negotiations. It also suggests the lengths to which he will go to reduce imports and boost exports.
Any tariffs on imports will likely face retaliatory tariffs on U.S. exports. Should President Trump continue to deem other nations’ levies as a threat to national security and expand U.S. tariffs, his actions would invite reciprocal moves. From there, inflationary pressures kick in as the added costs to imports push up consumer prices, consumption slows and economic growth loses its momentum. Just the fear of a trade war would impact business confidence, creating a wait-andsee attitude that places investment decisions on hold. This would spark a sell-off in stocks and slow economic growth even further. The U.S. has tried something like this before. Congress passed the SmootHawley Tariff Act in 1930, imposing tariffs on more than 20,000 imported goods to protect U.S. industry. The
actions that Congress took to protect the U.S. made things worse for everyone. Other countries retaliated, imposing their own tariffs. World trade decreased nearly 70 percent and the global economy sank deeper into recession. A trade war today would produce an equally sharp decline in trade flows, disrupt global supply chains, curtail consumer spending, boost inflation, raise interest rates, reduce disposable income and slow economic growth. Houston’s economy is still struggling to recover from the oil price crash. At the very least, a global trade war would prolong Houston’s recovery. At the very worst, a global trade war could tip Houston back into recession.
RISK: A TR ADE WAR WITH CHINA The Trump Administration has threatened to impose tariffs on more than 1,300 items imported from China. As justification for his actions, the President has cited the loss of U.S. manufacturing jobs to the Asian nation, the enormous U.S. trade
deficit with the country, threats to national security, the forced transfer of technology as a pre-condition for joint ventures with Chinese firms and the outright theft, through cyberattacks or other means, of intellectual property.
The president has signaled his intent for some time. In April last year, he directed the U.S. Department of Commerce to investigate whether imports of steel from China could be a threat to national security. In August, he asked the U.S. Trade
HO U STO N - C HINA TRADE
Value
Tonnage
20
25
16
20
$ Billions
14 12
15
10 8
10
6 4
5
Metric Tons (Millions)
18
2 0
0 ’98
’99
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
’12
’13
’14
’15
’16
’17
Source: WISERTrade from U.S. Census Bureau, Foreign Trade Division data
Greater Houston Partnership Research | May 2018
7
