Trade Balance

Trump and his aides insist his push to take on China and go beyond that by threatening allies such as the EU and Japan with auto tariffs among other things is aimed at rebalancing America’s economic relationships.

Those actions have nothing to do with the slowdown underway in the world economy, they argue, though institutions like the International Monetary Fund have called escalating trade tensions the largest risk out there.

“I don’t believe for a second that what we’re doing is having a largely negative effect on economic growth,” Robert Lighthizer, Trump’s chief trade negotiator, told a congressional committee this month, pointing to a U.S. economy growing faster than G-7 peers. “The economy in a lot of other countries is slowing down and it doesn’t have anything to do, in my judgment, with what we’re doing.”

Robin Brooks, chief economist at the Institute of International Finance, says it is too early in the trade wars to blame them for any broad economic trends. Nations such as Germany, which has been hit by Brexit and a slowdown in Turkey, have faced idiosyncratic forces, he argues. Data like those showing a slowdown in exports from Japan or South Korea to China represent “just the normal ups and downs of global manufacturing.’’

While economists such as Koopman say it’s hard to say how much Trump’s actions are to blame for a slowdown there’s no doubt they are changing trade flows. Put another way: Trump is causing globalization to adapt rather than go into reverse as he intended.

Production is shifting to other countries rather than coming home. Bloomberg’s new analysis found that in the first quarter of 2019, Taiwan saw sales to the U.S. of products hit by Trump’s China tariffs rise about 30% from a year earlier, while South Korea’s jumped 17%. Vietnam saw sales of China-tariffed products to the U.S. increase 27%.

“Globalization going into reverse would mean a lot of the production coming back to the domestic market,’’ Koopman says. “That’s not what we are seeing.’’

China also hasn’t let Trump’s penalties go unanswered. Peterson Institute analysts point out that even as it has retaliated and raised import taxes on U.S. products, China has lowered duties on goods from the rest of the world. Still, China’s data last month showed it’s not clear that strategy has resulted in a broad surge in non-U.S. trade just yet.

So whatever the outcome of the Trump-Xi talks at G-20 later this week, the early disruptions may leave lasting scars. “Even if we get some agreement at the G-20 meeting, we may underestimate the damage already done to capex planning and corporate sentiment by the trade war,” Torsten Slok, Deutsche Bank’s chief economist, said in a note to clients on Sunday.