It's Been 14 Months Since Trump Said 'Trade Wars Are Good And Easy To Win'

Fourteen months after President Donald Trump said trade wars "are easy to win," investors are still dealing with market weakness and volatility as the trade dispute between the U.S. and China continues, with the latest volley being a U.S. ban on supplying the Chinese phone company Huawei with technology and resulting collateral damage. 

p>“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump tweeted back on March 2, 2018.

Since that time, several rounds of tariff hikes between the U.S. and China have culminated with the latest exchange of economic fire earlier this month.

The Timeline 

In July 2018, the U.S. enacted its first China-specific tariff, a 25-percent duty on $34 billion in Chinese goods. China responded with its own tariffs on $34 billion of U.S. goods.

In August 2018, both the U.S. and China added another $16 billion in goods to their 25-percent tariff lists. At this point, each nation had $50 billion in export goods subject to 25-percent tariffs.

In September, the U.S. enacted 10-percent tariffs on an additional $200 billion of Chinese imports. Trump also said the tariff rate on these goods would rise to 25 percent on Jan. 1, 2019. China responded by adding new tariffs on $60 billion in U.S. goods.

On Dec. 1, the U.S. and China agreed on a halt to the trade war, and Trump delayed the Jan. 1 tariff hike until early March while negotiations continued. The tariff hikes were again delayed indefinitely in late February.

On May 10, the U.S. followed through with its threat to raise tariffs on $200 billion of Chinese imports from 10 percent to 25 percent. China responded with its own tariffs of up to 25 percent on $60 billion of additional U.S. goods that are set to go into effect on June 1.

Trade War Impact

Unfortunately for Trump, the trade war has been neither quick nor easy, and the impact is starting to become clear.

Strategas Research estimates the latest round of tariff hikes will cut U.S. GDP growth by 0.1 percent and China’s GDP growth by at least 0.4 percent. China’s retail sales grew by 7.2 percent in April, the nation’s slowest growth rate in 16 years. U.S. retail sales were down 0.2 percent in April, while industrial production was down 0.5 percent.

About 59 percent of U.S. companies have already been impacted by higher prices as a result of the trade war, according to Bank of America Merrill lynch. 

“It’s going to be very important to watch how the economy is going to fare around the escalation. Manufacturing has weakened already,” economist Michelle Meyer recently wrote.

Despite Trump’s tariffs, the U.S. trade deficit climbed to a record high $419.2 billion in 2018.

Trump tweeted May 14 that the U.S. steel industry is “booming” thanks to his tariffs on imported Chinese steel.

Investors are certainly not feeling the boom: the VANECK VECTORS/STL ETF SLX is down 19.1 percent since the beginning of 2018.

“Trump’s trade policy with respect to China is not just economically poorly designed but politically naïve,” Thomas Prusa, a professor of economics and the chair at Rutgers University–New Brunswick, recently said.

“Given that he has levied tariffs primarily on intermediate goods, Trump’s tariffs are is now saddling U.S. businesses with a large tax.”

Investors Take Notice

Many analysts and experts had anticipated an imminent trade deal in recent weeks, but the latest escalation may signal otherwise. 

It seems investors are finally getting concerned about a lasting impact of the trade war. So far this month, the SPDR S&P 500 ETF Trust SPY is down 1.23 percent, while the iShares FTSE/Xinhua China 25 Index FXI is down 10.4 percent.

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President Donald Trump crosses the tarmac from Marine One to board Air Force One on Friday. White House photo by Shealah Craighead.