Trump Bets the U.S. Economy on Tariffs


The full force of China tariffs would hit a wide range of industries that rely on Chinese imports, including retailers, sportswear companies and cellphone dealers. The Mexico tariffs would slap car-buyers and an already reeling automobile industry, which saw slowing sales in April and has begun to lay off American workers this year. Automobiles and auto parts account for more than a quarter of America’s goods imports from Mexico; American automakers have heavily integrated their supply chains with suppliers and plants across the southern border.

As Deutsche Bank chief economist Torsten Slok wrote Thursday evening, “trade with Mexico is basically all about the supply chain, which essentially is all about cars.”

Share prices of car companies reflected the damage on Friday, with the stocks of General Motors and Ford down about 4 percent in morning trading.

Full tariff escalation could also hasten what data suggest is a global slowdown in manufacturing, imperiling growth here and abroad. Forecasters have cut their outlooks for second-quarter growth in recent weeks, based on weaker-than-expected data.

Sagging growth, in turn, could further drag down Mr. Trump’s approval ratings, which have slipped over the last month. Mr. Trump is banking on a strong economy to help his re-election prospects next year.

Federal Reserve officials were already closely watching Mr. Trump’s trade spats as a risk to the economic outlook — and potentially one that could push them toward cutting interest rates. The Fed’s vice chairman, Richard Clarida, said in a speech Thursday, before Mr. Trump’s tariff announcement, that while the economy was doing well, “if we saw a downside risk to the outlook, then that would be a factor that could call for more accommodative policy.”

Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview in New York on May 21 that he thought markets were anticipating a trade deal with China at that point.

“But sometimes things happen, so we have to be concerned — that is a downside risk to my forecast,” he said. “My forecast is relatively optimistic, but it’s with the assumption that trade doesn’t become more disruptive, that financial markets don’t get very concerned about the likely outcome.”



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