Is US President Donald Trump's escalating trade war with China pushing up the price of Bitcoin? Photo: AFP

The escalation in the trade dispute between the world’s two largest economies came as China said it would raise tariffs on US$75 billion worth of American-made goods. US stocks slumped on escalating trade tensions and the market moves have signaled that many investors expect the American economy to slide into recession in the future, with the trade war as a major reason. 

Top White House advisers notified President Donald Trump that some internal forecasts showed that the economy could slow markedly over the next year. He has publicly gloated about economic problems in China but those strains appear to be holding back US growth as well, which will complicate his path to re-election in 2020.

The US-China relationship is under considerable strain and Trump’s China strategy is failing. His tough approach has yielded no meaningful Chinese concessions but is increasingly damaging the US economy. Now, as he prepares to run for re-election on the claim that his populist nationalist agenda has been a smashing success, it’s awfully telling that his team has now launched a frantic effort to deny glaring truths about that agenda.

It is not clear why the chances of Trump winning re-election have shifted strongly in his disadvantage over the past few months when the fundamentals don’t seem to have changed much. The US-China trade war fuels recession fears and has already taken many casualties, but will it hurt Trump in 2020?

With Trump consistently polling behind many of the top Democratic candidates, the president’s re-election campaign is holding out hope that the economy continues its expansion and enough swing-state voters continue to support his tough-on-China trade policy. However, the US-China trade talks broke down in Shanghai at the end of July; Trump immediately declared retaliation, saying that the US would impose an additional 10% tariff on Chinese imports worth $300 billion beginning on September 1. And less than half a month later, the Trump administration announced that the additional tariff would be postponed until end of the year. The ban on US exports to Huawei will also be postponed. The outside circle’s explanation is that this time in his confrontation with his Chinese counterpart Xi Jinping, Trump blinked first.

Trump’s strategy not only befuddled China, but also threw the global trade order off balance. More important, for many years, the manufacturing industry has been moving out of the US, and many American consumer goods are no longer produced at home. Trump has repeatedly imposed additional tariffs on imports from China; in last year’s wave, the burden was absorbed by importers and manufacturers, but in this year’s wave, the burden will inevitably be shifted to consumers directly.

Trump endlessly adopts punitive measures; although they do hurt the intended target, the US stock market gyrates, entangling many investors. Now Goldman Sachs analysts report that fears that the trade war will trigger a recession are growing, and as a result American consumers will be harmed badly.

The US will hold a presidential election on November 3 next year; if voters are highly dissatisfied with Trump’s economic policies, the public and enterprises will suffer the consequences, which inevitably will be unfavorable to his re-election bid. This is a reality that Trump cannot but face squarely.

In the past when the global economy has slowed, US performance has been the exception, going strongly. However, recently the US stock markets have suffered plunges, and in recent days, a phenomenon of yield inversion in the bond market has occurred, both affecting investor confidence. Examining this situation, Trump seems to be unable to bear domestic pressure, thus he cannot but postpone the imposition of additional tariffs on consumer goods until after the Christmas shopping season, in order to avoid an early outburst of consumers’ dissatisfaction.

However, what is noteworthy is that currently the yield inversion in the US bond market elicits sharp declines in the Dow Jones indices. Since 1954, in nine out of 10 instances of yield inversion, economic recessions occurred two years later. In other words, after a whirlwind escalation of the US-China trade war, the economic outlook will be bleak. After this, people will see Trump filled with anxiety and agitation, who will make a series of cavalier and brusque moves, causing more unpredictable changes. However egoistic Trump may be, it probably will not be easy for him to walk smoothly on the tightrope between the trade war and his electoral campaign.  

While Trump’s tariffs and anti-competitive and abusive trade practices have taken a bite out of China’s economy, they have also hurt some in the US, and his trade war with China is further slamming the US stock market, and is now threatening the economy. As the election gets closer, Trump will be more concerned about stimulating the economy than his trade policy, and at that point he will be desperate to cut any deal to boost the markets.

The strength of the US economy has been the central pillar of his re-election strategy, and avoiding a recession has been a determining factor in whether or not Trump wins a second term.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now. 

Kent Wang

Kent Wang is a research fellow at the Institute for Taiwan-America Studies (ITAS), a conservative Washington-based think-tank focusing on aspects of US-Taiwan relations, and is broadly interested in the United States-Taiwan-China trilateral equation, as well as in East Asian security architecture.

Join the Conversation

21 Comments

  1. Hey! This is kind of off topic but I need some guidance from
    an established blog. Is it difficult to set up your own blog?
    I’m not very techincal but I can figure things out pretty fast.

    I’m thinking about setting up my own but I’m not sure where to begin. Do you have any points or suggestions?
    Appreciate it

  2. Excellent blog right here! Also your site quite a bit up
    very fast! What web host are you using? Can I get your associate hyperlink for your host?
    I desire my site loaded up as fast as yours lol

  3. Just want to say your article is as astonishing.
    The clearness in your submit is just nice and i could think you are
    knowledgeable in this subject. Well with your permission allow me to snatch your feed to stay updated with forthcoming
    post. Thanks a million and please keep up the
    gratifying work.

  4. I like the valuable information you provide in your articles.
    I’ll bookmark your blog and check again here frequently.
    I’m quite certain I will learn many new stuff right here!
    Best of luck for the next!

  5. I know this website offers quality based articles and additional material, is
    there any other web site which presents these data in quality?

  6. Thanks for any other informative site. Where else may
    I am getting that type of information written in such an ideal
    way? I have a venture that I’m simply now working on, and
    I have been on the glance out for such info.

  7. Please let me know if you’re looking for
    a author for your blog. You have some really great articles and I think I would be a good asset.
    If you ever want to take some of the load off, I’d love to write some content for
    your blog in exchange for a link back to mine. Please shoot me an email if interested.
    Kudos!

  8. I will immediately grab your rss as I can not find your e-mail subscription hyperlink or newsletter
    service. Do you have any? Please allow me understand so that I could subscribe.

    Thanks.

Leave a comment

Your email address will not be published. Required fields are marked *