US-China Trade War
President Donald Trump marched on the sidelines of a self-inflicted recession and a potential collapse of the supply chain. But at the last moment Trump decided to withdraw. The breakthrough in the US-China trade war, presented on Monday as a high-level trade deal between the two largest economies in the world, has been paralyzed.
Impact on the Economy
The dramatic decline in US-China tariffs is an undeniable positive in comparison to a few days ago. The breakthrough has already triggered an epic party on Wall Street and hopes that a tariff-driven nightmare can be avoided. Nevertheless, economists say that it is still too early to explain that the US economy is not at risk as a whole. Recession risks remain, even if the likelihood of a downturn has been reduced.
Tariffs and Their Effects
The tariffs are still very high – much higher than at any time in decades. The uncertainty is even higher. Damage to trust and trade flows is not undone overnight. In addition, there is no game book for what happens next. There is no precedent for how a modern economy has gone through so many shocks in this short time.
Expert Opinions
"We are far from getting out of the forest," said Douglas Holtz-Eakin, President of the American Action Forum and the former economic advisor to the Republicans. "There is a narrative that Trump made a turnaround. He didn’t do it. We still have tariffs on levels that we have not seen in a century. This is a significant increase in tax." At 145%, the US tariffs in China were not sustainable, which corresponds to an effective trade embargo. Supply-chain expert warned of immediate problems, including empty shop shelves.
Economic Forecast
Mark Zandi, Chief Economist at Moody’s Analytics, said that the effective tariff rate has dropped from 21.3% to 13.7%. This is still the highest level since 1910. At this level, the tariffs will give more than one percentage point of the US inflation next year and delete the same amount from the gross domestic product (GDP). Zandi does not cut his recession forecast-but not dramatic. He is now seeing a 45% chance of a US recession of 60% this year.
Trade War Not Over Yet
The US-China trade war is not over yet, even if it became dramatically less bad. And tariffs are not suddenly removed from the President’s tool box. Sector-specific tariffs still last, including potentially on wood, semiconductors, pharmaceuticals, copper, critical minerals, and trucks. The risk of further tariffs in advance is a reason why RSM chef economist Joe Brusuelas will hold his forecast of 55% in the next 12 months.
Uncertainty and Its Effects
The uncertainty had almost anywhere. Trading patient uncertainty as measured by an index that mentions the topic in the most important US newspapers, in the past few months into the invisible non-sightment in the 1960s. The sudden reduction in tariffs in the USA and China will make financial pressure on the business world easier, but only contributes to the feeling of whirlpool trauma. And it remains to be seen how companies react to uncertainty that Wolfer described as "paralyzed high".
Conclusion
"It is absolutely a crisis produced," said Holtz-Ekin, who worked as a business consultant of Senator John McCain during the 2008 presidential campaign. Wolfers said that investors and the business world were still off to fall the next shoe when it comes to collective bargaining policy from the White House of Trump. "What are the chances that we will have 90 days of peace ahead of us?" Wolfer said. "Today we have good news, but what was really good news is if someone just took away the button."
