President Donald Trump is starting to find out, contrary to what he predicted in March 2018, that a trade war with China will not be “easy to win.”
The escalating feud sent markets plummeting early this week, with the Dow Jones Industrial Average dropping 767 points Monday after China announced that it was suspending U.S. farm imports and allowed its currency to fall to a 10-year low against the dollar. The moratorium on farm purchases is “a body blow to thousands of farmers and ranchers who are already struggling to get by,” according to American Farm Bureau Federation President Zippy Duvall, and as White House trade negotiator Robert Lighthizer’s talks with China have gone nowhere, there is no end in sight.
Trump in May allotted another $16 billion in bailout funds for farmers harmed by his trade dispute, on top of $12 billion last year. The bailout funds are keeping many farmers afloat, but can only be a temporary solution. As former Iowa Lt. Gov. Patty Judge noted to CNBC this week, banks are reluctant to lend to farmers without assurances that there will be consumers purchasing their products.
As the world’s most populous country, China is 60 percent of the global food market. But since being singled out by Trump for a trade war, its appetite for U.S. imports has dwindled from $19.5 billion in 2017 to $9.1 billion last year and only $1.3 billion through the first half of 2019, according to the American Farm Bureau.
“There’s been years, if not decades, put into establishing these markets,” Fresno County Farm Bureau CEO Ryan Jacobsen said to CBS this week, “and to see them go away overnight is very troubling.”
The Dow felt ructions again Wednesday as investors abandoned stocks for the safety of gold and bonds. This volatility, too, has Trump’s fingerprints all over it after he pressured the Federal Reserve last month into cutting its benchmark interest rate for the first time in 10 years. The yield curve, which has inverted before every recession, has now inverted to its most extreme point since shortly before the 2008 crisis. Bizarrely, Trump insisted Wednesday on Twitter that the yield curve is “at too wide a margin,” raising questions about his basic knowledge of economics.
Trump also seems to have a dubious understanding of how the dollar works. His administration officially designated China a currency manipulator Monday, after avoiding such a declaration in the first two years of his presidency. Having been elected on a platform of revitalizing U.S. manufacturers, Trump is trying to weaken the dollar to make exports cheaper, and now seems annoyed that China won’t let him win a race to the bottom.
But just as his demand for rock-bottom interest rates from the Fed has negative consequences for those with savings accounts and pension funds, Trump’s effort to weaken the dollar will mean reduced purchasing power for U.S. consumers. This is, after all, a president who in 2017 reportedly called then-adviser Michael Flynn, a former Army general, at 3 a.m. for advice on whether a strong or weak dollar is better for the U.S. economy.
The president’s haphazard strategy for winning this fight is beginning to perplex investors, who are struggling to discern what goal he had in mind in the first place.
“You’re asking this question and I can’t even tell you what victory is,” economist Steven Blitz of TS Lombard said to CNBC this week. “You’re creating a disruption, but all you’re really doing is potentially weakening the Chinese economy. But to what effect? It’s a good question.”