Can Tariffs Bankrupt Americans?

Conclusion

We’re not here to judge the effectiveness of President Trump’s negotiations because we don’t know what is going on behind closed doors. We only need to measure the impact of the trade war and figure out the various possibilities and the odds of each occurring. An all-out trade war with China will slow growth in both countries and increase inflation. The Fed is more likely to respond to this trade war with a rate cut than a rate hike even though inflation will increase because it needs to support the economy. It’s not surprise negotiations aren’t going smoothly because intellectual property infringement isn’t an easy issue to solve.    

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Comments

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Gary Anderson 1 year ago Contributor's comment

If inflation results, the Fed may not be able to cut because it would weaken bond collateral. But tariff wars, as Scott Sumner has said, can be deflationary as in the Great Depression. Also Fed miscalculation risk rises if the tariff was continues to escalate.

Gary Anderson 1 year ago Contributor's comment

Intellectual property is not the biggest issue. Tech transfers are the biggest issue. Since tech transfers are not illegal in and of themselves there appears to be an impasse. If Trump bans US tech firms from doing business in China, other nations will take our place, but it may break the impasse.