President Trump's escalating trade war with China poses clear risks to the global economy and growing political risks for his 2020 reelection bid.
Shortly before igniting a new round in his trade war with China, President Trump last week accused Beijing of trying to stall talks until after the 2020 election in hopes of negotiating a better deal with a Democrat in the White House.
And it’s almost impossible to calculate what renewed conflict may mean for global financial markets, though Wall Street’s panicky reaction when Beijing allowed a devaluation of its currency suggests future instability. This at a time when the world economy is slowing. He would risk a big backlash if he were to accept anything less than a comprehensive deal that includes not just hefty purchases of American goods but major structural reforms to China’s state-run economy.
Beijing moved to stabilize its currency Tuesday and didn’t react to Trump’s order to designate China a currency manipulator, helping to calm investors and recover some of the losses from recent days. “The Fed could aggressively cut rates to offset the negative economic fallout from the trade war,” Zandi said, noting that he now expects two or three more quarter-point cuts by the end of the year. “If the economy avoids recession, it will be because of the Fed’s efforts, but it will be difficult for policymakers to successfully calibrate the rate cuts to offset the impact of the trade war.”
Throughout Trump’s first term, there has been division within his administration about how to approach China. Hard-liners, who have been gaining influence, want to squeeze China to make concessions and would not mind if ongoing tensions pushed investors and businesses away from China in a decoupling of the two economies. But others such as Treasury Secretary Steven T. Mnuchin have sought a softer tack, worried about the damage to U.S. markets and the broader economy.
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