Last night President Trump announced that he was levying an additional $200 billion of tariffs and Chinese imports. The result was significant stock market declines throughout Asia and Europe. Several weeks ago, Mr. Trump said that winning a trade war wasn’t so difficult. Does he still believe that?
So far Trump is not winning anything. US stock indexes keep falling day after day. The Dow Jones industrial average declined to a level on today’s opening that effectively wiped out all of its gains for 2018. Meanwhile, the US economy is beginning to show some signs of weakness. New housing starts and industrial production are softening. Other indicators are also supporting the view that economic activity is slowing down.
On the trade side, China is imposing stiff tariffs and the US is following suit. Europe seems to ready itself to do the same thing. Will we see a global trade conflict that will end up hurting everyone and create a major global economic downturn? If a global recession returns, how bad will it be? From the present perspective, it could be quite bad, especially since the Trump administration shows that it is totally intransigent about changing any policies it is pursuing. The huge tax cut and the massive injections of cash into the economy will probably not be enough to counter the coming economic decline.
An additional problem affecting the administration is the conflict over immigration. While it is abhorrent that small children are being ripped out of parent’s arms, the flood of illegal immigrants into the US is a serious problem that needs to be dealt with. It is very difficult to deal with. US farmers need cheap migrant labor, but the country needs them to go home after the harvest.
Illegal migration is a global problem that no major country has yet been able to solve. European countries are struggling to deal with the huge influx of migrants. Germany’s new government is facing serious challenges about the question of uncontrolled migration. Brexit most likely is partly the result of too many East Europeans coming into the UK and the electorate responding by opting out of the EU. There is no solution to that problem yet, but a coming global recession could be the answer.