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Stock Market Investors Caution Tariffs Aren't Good For Business

STEVE INSKEEP, HOST:

President Trump's tariffs and threats of imposing even more taxes on imports to the United States have concerned a devoted supporter. Anthony Scaramucci - financier, Fox Business personality, White House communications director for 10 days - wrote last weekend, quote, "I am worried about the trade rhetoric going too far. Capital is starting to withdraw from stocks. Change tactics now," writes Scaramucci. Well, there's a place to begin our talk with David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributor to The Wall Street Journal.

Hi there, David.

DAVID WESSEL: Good morning.

INSKEEP: So how does it affect the overall economy when the United States is fighting trade battles against China and the European allies and Canada and a little bit more than that all at once?

WESSEL: Well, clearly, it's bad for the stock market. We've seen that. And clearly, it's painful for those businesses that rely on imported parts or farmers and others who rely on exporting to the rest of the world. But actually, these tariffs have not yet had much effect on the overall pace of economic growth in the U.S. Forecasters tell us the economy probably grew at better than a 4 percent rate - that's pretty good - in the just-ended second quarter. They say that the tariffs so far may only shave off a tenth of a point or two-tenths of a point off of growth.

The problem is looking forward. The risk is, one, that the president will make good on his threats to impose even more tariffs, which will then trigger even more retaliation and that this will get out of hand, that everybody's earlier expectations that - oh, grown-ups will prevail - will prove to be wrong. I've noticed - these reports I get from analysts on Wall Street and other economists, they said first that the risk of an all-out trade war was very small. Now they're starting to say, well, the odds are growing.

INSKEEP: Oh, because you keep hoping that somebody will pull back from the brink. But who knows who that would be, which then raises the next question - could continually increasing tariffs cause a recession?

WESSEL: It absolutely could cause a recession. Look, the U.S. has gone without a recession for nine years now. That's a very long time by historical standards - only happened once before in the last 150 years, and that was in the 1990s. Economists like to tell us, with accuracy, that expansions don't die of old age. But they don't go on forever either. And it's not hard to imagine what happens here.

We put tariffs on our trading partners. They put more tariffs on us. We put more tariffs on them. Exporters lay off workers. Global supply chains get disrupted. Prices rise. The stock market drops. Businesses are shaken, pull back on investment. You get the idea. It could really escalate.

INSKEEP: Now, I suppose if you're President Trump, you're hoping that China is hurting here and might feel, at some point, intimidated and willing to back off, that other countries will feel the pain and be willing to back off. And I do notice that the Shanghai stock market, up until very recently, was down about 15 percent for the year - up a little bit overnight - but has been very down this year. Does that mean that China actually is hurting?

WESSEL: Well, we know that exports are very important to the Chinese economy. And there's no doubt that the tariffs we're imposing on them are hurting their exports. And that's one reason that Shanghai stocks are down - a lot of other things going on, too.

But let's remember, the Chinese have cards of their own to play. President Trump is not targeting only China, as you said. It's Europe, Mexico, Canada, too. And so China's seeing an opportunity here. They're accelerating efforts to organize a free trade deal with 16 big Asian countries - big and small - Japan, India, Australia. And they'll have more impetus for that. And they also can make life miserable for companies based in the U.S. that export to China or do business in China, as they've done. They're going to raise tariffs on SUVs made in the United States by Ford, Tesla, Mercedes and BMW.

INSKEEP: OK. So David, the president has tweeted this morning, (reading) the economy is doing perhaps better than ever before - those are his words. He's also been tweeting, (reading) be patient. It's all going to work out.

But are companies likely to be that patient? Very briefly.

WESSEL: No, I don't think so. I think companies that have built strategies on globalization, global supply chains - are beginning to rethink them. And let's remember - while there's a lot of focus on people who get hurt by globalization, there are a lot of people in the United States who've benefited. And those patterns that have led us to the prosperity that many people have enjoyed here and around the world are now at risk.

INSKEEP: David, thanks very much.

WESSEL: You're welcome.

INSKEEP: That's David Wessel. Transcript provided by NPR, Copyright NPR.