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Stocks fall as Trump threatens to reignite trade war

By Masao Suzuki |
May 8, 2019
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San José, CA - On Tuesday, May 7, the Dow Jones Industrial Average (DJIA) fell almost 500 points, or close to 2%. This came following President Trump’s tweets on Sunday threatening to escalate the trade war with China on Friday if he couldn’t get a trade agreement done. While the U.S. stock market largely shrugged off this news on Monday, statements by his economic advisors convinced investors that his threats are for real.

Trump threatened to raise the 10% tariffs, or taxes, to 25%, on about half of goods imported from China. In addition, he threatened to place 25% tariffs on almost all other Chinese-made goods coming to this country. These new tariffs cover a wide variety of consumer goods such as cell phones that escaped his first round of tariffs.

Despite the Trump administration’s growing use of tariffs, starting with washing machines and solar panels, then going to aluminum and steel, and finally on hundreds of billions of dollars of Chinese goods, the U.S. trade deficit actually grew last year. Perhaps frustrated by the failure of his policies to boost U.S. trade, Trump is threatening to escalate the trade war with China and is also laying the groundwork for tariffs on imported cars. The Trump administration is seeking to label imported cars a ‘national security’ threat, despite the fact that they are almost all from Canada, Mexico, Germany and Japan.

U.S. companies have mainly reacted by raising prices, not by increasing production. After the 25% tariff on washing machines, prices on both washing machines and dryers (which were not subject to tariffs but which are often sold with a washing machine) both have gone up about 12%. In the case of steel, the 25% tariffs were almost matched by a 22% rise in the price of steel. While this has fattened corporate profits, it has not benefited workers.

Other businesses are bracing for possible retaliation if Trump goes ahead with tariffs on more Chinese goods or on cars. After the imposition of tariffs on Chinese goods, U.S. exports of soybeans to China, which was almost half of U.S. production, fell to almost zero last year. While almost no cars are imported from China (GM imports a small number of smaller SUVs that it makes in China), a good number of car parts are, which will increase the cost of making trucks and SUVs in the United States.

Like white supremacists who promote the idea that whites are ‘victims’ of Black people, Mexican immigrants and Central American refugees, Trump promotes the idea that the United States is victimized by other countries. Given that the U.S. is still the world’s largest economy and has dominated the economies of many other countries for years, the idea is ridiculous, but it helps to whip up racist fears.

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