1. The Economics of the Trump Trade War
David E. Weinstein
Columbia University and NBER

2. “Trade Wars Are Good, and Easy to Win” – Donald Trump (Mar 2, 2018)

3. U.S. Objectives Increase Employment Reduce the Trade Deficit
Preserve Value of US Intellectual Property
USTR estimate of cost of IP theft by China is $ billion per year
So, how we doin?

5. So What is the Foreign Reaction?

6. Value of US exports facing retaliation is 50% of value of US imports subject to US tariffs and amount is rising fast

7. Complexity of Supply Chains Means that Our Tariffs Hit Our Firms
Source Lovely and Liang (2018)
Much of the IP we are protecting is being devalued by tariffs making US firms uncompetitive

8. Case Study: What Have Steel Tariffs Accomplished?
Source: Bown (2017)
Easy to understand the impact of protection on steel employment because the US has consistently targeted this industry

9. US Steel Protection is Associated with a Decline in Steel Employment
Source: Amiti, Heise, and Kwicklis (2018)

10. Why Doesn’t Protection Create Jobs?
Main story in the decline of employment in manufacturing is technological change
Protection of steel raises the cost of producing goods that use steel as an intermediate (e.g. cars)
US users of protected inputs face higher costs, become internationally uncompetitive, sell less at home and abroad, and reduce demand for the protected inputs
Downstream users switch production abroad

11. But the Trade Balance is Improving, Right?
Who you gonna believe Trump or your lying eyes?
Trump Prediction
Trade Balance: Goods and Services
Trend
8/2016
8/2018

12. What about the Impact on Prices?

13. Let’s Look at One of the First Sectors Protected: Washing Machines
Washing Machine Prices in CPI Data

14. Stock Market Evaluation
S&P 500 returns
CSI 300 returns
Event Date
Day
[-1,+1]
Event
-1.33%
-1.93%
-0.81%
-0.13%
Steel/Aluminum Announcement
-2.52%
-4.80%
-2.87%
-4.51%
US Starts S301 Case Against China
-2.23%
0.40%
-0.63%
-1.12%
China Retaliates
1.26%
0.18%
-0.20%
-0.88%
US China Tariffs Announded
1.16%
3.10%
-0.05%
1.68%
0.69%
-0.35%
US Retaliates
0.81%
1.59%
-1.58%
-2.72%
US Bans Sales to ZTE
-0.10%
-0.07%
-3.53%
-3.66%
$50 bln tariffs on China
-0.21%
-0.72%
$200 bln tariffs on China
Total
-2.47%
-2.60%
-13.25%
-13.32%
Source: Huang, Lin, Liu, and Tang (2018)
As of June, Aggregate Stock Market Loss in US is $741 billion