(5 Jul 2018) Robert Scott, an economist with the Economic Policy Institute in Washington says he thinks the Trump administration's impending "trade war" with China and U.S. allies is less of a threat to the U.S. economy than Trump's budget and tax policies.
"The cost is not going to be as large as some people think," Scott said. "We're talking about essentially tariffs of 10 to 25 percent on perhaps 50 to 100 billion dollars worth of imports. That's a tiny fraction of the overall U.S. economy."
A Chinese government spokesman said Beijing will defend itself if U.S. President Donald Trump goes ahead Friday with plans to raise duties on $34 billion of Chinese goods in the escalating conflict over technology policy.
Chinese President Xi Jinping's government has issued a list of U.S. goods for possible retaliation, but the Commerce Ministry said it will wait to see what Washington does.
Scott thinks the growing U.S. economy will limit the damage of any trade dispute the U.S. has with China, or with it's allies, such as Canada and the E.U.
"There'll be a lot of individual disruptions, a lot of workers laid off. But an economy that's gaining 200-250,000 jobs a month, that will be noise, it will be lost in the overall growth of the economy. And that's that's one way in which Trump has gotten lucky in this case."
A bigger threat to the U.S. economy, he says, is the Trump administration's budget and tax policies.
"The fundamental problem we face today in international trade is that the value of a dollar is too high and needs to fall by 25 or 30 percent," he says.
"And unfortunately the Trump administration has yet to address that problem. I think that would be the key to eliminating the trade deficit and rebuilding U.S. manufacturing."
Scott thinks the tax cut passed by Congress and signed by the president, plus the likelihood that the federal deficit will climb in the years ahead poses the bigger long term threat to the economy.
"We could begin to absorb more and more borrowed money coming from the rest of the world to pay for our growing budget deficits," he says.
"And that looks a lot like what happened in 2005 and 6 and 7, when massive increases in borrowings ultimately led to the housing crisis and the stock market collapse that caused the Great Recession. So I think that's the bigger risk in the economy right now."
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