Donald Trump’s tariffs and the trade war his administration has launched against China have proven to be far more damaging than many thought. This is the conclusion of a study that found that businesses, consumers and the U.S. economy have paid a heavy price for the protectionist trade policies of the Trump administration.

In new search, Mary Amiti, an economist at the Federal Reserve Bank of New York, and Sang Hoon Kong and David Weinstein, both economists at Columbia University, used stock price movements to measure the response to policy announcements on tariffs and the escalation of the United States. Trade war in China initiated by the Trump administration. “Stock prices are well suited for this purpose because the market value of the company equals the expected present value of the company’s future profits,” according to Amiti, Kong and Weinstein. “Therefore, fluctuations in stock prices tell us about changes in the expected future value of the company’s own capital (both tangible and intangible).”

“The results suggest that the markets interpreted the impact of tariffs as much more negative than economists initially estimated,” David Weinstein said in an interview. “Part of the reason is that US tariffs increased significantly in 2019, and previous studies did not include these higher rates. In addition, the new analysis suggests that the impact of tariffs on productivity is likely to be a factor in slowing growth rates in the United States. Tariffs protect the least efficient firms and reduce their incentives to innovate while hurting the best performing US firms, reducing their ability to innovate. “

“We consider three ways in which companies are exposed to China: import, export and overseas sales (whether through exports or affiliates),” note the economists. “It is important to capture indirect imports that are ultimately bought by US companies, because many companies do not import directly from China but rather obtain Chinese inputs through their subsidiaries or the US subsidiaries of foreign companies. For example, Apple Computer’s exposure to China may result from direct imports, imports obtained through its subsidiary (Beats Electronics), or the purchase of iPhones from Foxconn’s US subsidiary. “

Among the main research findings:

– Economists see a long-term decline in the well-being (or “well-being”) of American consumers of 7.8%: “Our results show that the trade war announcements caused sharp declines in American stock prices, according to the PTF [Total Factor Productivity], and expected inflation largely by shifting macro variables, but also by causing lower yields for companies trading with China. We find that the markets expect the trade war to reduce the welfare of the United States by 7.8 percentage points. “Total factor productivity (TFP)” is the part of production not explained by the quantity of inputs used in production “, as defined by the Harvard Business School.

– The decline in the stock market value caused by the trade war announcements “resulted in a loss in the value of the company of $ 3.3 trillion (equivalent to 16% of the US GDP [Gross Domestic Product] in 2019). This is more than the estimated $ 1.7 trillion in the loss in value of the company in a previous article economists.

Economists have identified “11 trade war announcement dates, including six US tariff events and five retaliatory events in China.” The Trump administration announced tariffs on solar panels and washing machines on January 22, 2018, which have been imposed on imports from China and other countries. On February 28, 2018, the administration announced that it would impose tariffs on steel and aluminum, which also affected China and other countries. “All subsequent US tariff events apply only to China,” as discussed in the study, including the May 29, 2018 announcement of a 25% tariff on $ 50 billion of Chinese imports , the announced US decision to increase tariffs by $ 200. billion Chinese products up to 25% and others.

“The data shows that there have been large and persistent movements in stock prices and inflation expectations following these trade war announcements,” according to Amiti, Kong and Weinstein. “We see that the stock market fell on all of the event dates except one American event date and one China event date, with a total drop of 10.4% across all events, and 12.9% on three-day windows (start of the day before the announcement and extension one day after). These market declines imply substantial declines in expected profitability for US companies – a factor that. . . suggests will result in expected salary cuts.

“We are exploring the persistence of these stock market movements. . . The data reveals that in the five trading days leading up to our events, stock price movements were quite weak. Indeed, there is little evidence that anything extraordinary is happening in the market before the announcements. However, the days of announcement. . . we see that there has been a sharp drop of more than 10%. Moreover, the persistence of this decline is also quite striking. Even though we follow the market five trading days later (roughly a week of calendar days), we find that the market has not recovered. Thus, there is little evidence that markets overreacted and rebounded from their initial negative assessment of the trade war on expected returns. “

Amiti, Kong and Weinstein used a sample of 2,859 companies from all industries that are publicly traded in the United States and present fascinating data that shows that more than half of the listed companies in the sample were related to the Chinese economy and affected by the trade war. : “We find that only 10% of the companies in our sample import directly from China, and only 2% export directly to China. However, if the subsidiaries are taken into account, these figures rise to 24% and 4% respectively. When we add in the imports of all companies in the supply chain, we find that 29% of all companies listed in the United States import directly or indirectly from China. . . . we construct a variable, “Company exposed to China” if a company in the company’s network exported or imported from China or if the company had positive revenues from China (possibly sales of its subsidiaries ). We find that 53% of all companies have been exposed to China through one or more of these channels. “

Because the courts and Congress have ceded authority over trade to presidents, Donald Trump has had a free hand to conduct trade policy during his presidency. With this free hand, the evidence shows that he inflicted significant damage.

Much of Donald Trump’s political appeal lay in being a businessman (as shown The apprentice) and its perceived management of the US economy. The latest research illustrates the negative impact of his trade policy, leading to the conclusion that to the extent that a president manages the economy, Donald Trump has mismanaged it.


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