Trump Sees Little Political or Economic Downside to Tariffs - Global Trade Magazine
  July 17th, 2018 | Written by

Trump Sees Little Political or Economic Downside to Tariffs

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  • The economic and political stars may be aligned to give Trump room to maneuver on Tariffs without much cost.
  • Job losses due to the tariff tantrum provide some relief to the hot labor market.
  • Tariffs act as the equivalent of a domestic tax increase.

For all of the breast-beating over President Donald Trump’s tariff war, it’s possible that the economic and political stars are sufficiently aligned to give him room to maneuver without costing him much.

That, at least, is the opinion expressed by Bart Oosterveld, director of global business and economics at the Atlantic Alliance, a Washington think tank, on the organization’s blog. Oosterveld gives three reasons for his conclusion.

Job losses resulting from the tariffs could help cool down the economy. Although Trump promised to bring back blue-collar jobs, he inherited an economy that was at close to full employment, meaning that the 200,000-a-month jobs that have been added since he took office threaten to overheat the economy and stoke inflation.

“As such, job losses here and there due to the tariff tantrum, combined with the gradual interest rate increases by the Federal Reserve, provide some relief,” Oosterveld wrote.

Astonishingly, he added: “It is possible that the administration is deliberately using tariffs, which act as the rough equivalent of a domestic tax increase, as a way to reduce consumption and aggregate demand.”

The retaliatory tariffs being imposed by the EU, China, and Canada will have limited political impact for the administration. Their implementation will gradual, prices often take time to adjust, and job losses will not affect Republican prospects in the midterm elections, according to Osterveld. “The president uses the countermeasures as further justification of his policies,” he noted.

The US dollar is still strong. The impact of the administration’s tariffs is mitigated by the strength of the US currency, boosting the purchasing power of US consumers and manufacturers.

Meanwhile, wrote Oosterveld, Trump is putting additional pressure on US trading partners by limiting administration face time with them for negotiations which could potentially alleviate the tension.