Global Economy

The biggest threat to the economy is Trump's trade policy, says veteran US diplomat


Richard Haass

Paul Morigi | Getty Images

ABU DHABI, United Arab Emirates ⁠— With just under a year to go until the 2020 U.S. election, President Donald Trump “has the wind in his sails” thanks to the state of the U.S. economy, veteran political analyst Richard Haass said on Tuesday. At the same time, the longtime diplomat warned that the single biggest threat to the economic progress of recent years is Trump himself.

“The recent job numbers and unemployment numbers were extremely good,” the Council on Foreign Relations president told CNBC’s Dan Murphy at the SALT conference in Abu Dhabi.

“The biggest threat to the economy, ironically enough, is the President’s own trade policy. It’s the tariffs he’s putting on, his attack on the World Trade Organization, and this is probably taking half a point or more off of America’s GDP (gross domestic product) and off of global GDP.”

A CNBC analysis from last May looking at data from the Treasury Department equates the combined $72 billion in revenue from all the president’s tariffs up till that point to one of the biggest tax increases since 1993.

Just last week, the International Monetary Fund warned that the U.S.-China trade war could cost the global economy $700 billion by 2020.

But what Trump’s seeming stranglehold on global trade suggests, Haass said, is that “If (Trump) ever wanted, he could pull back. He could ease up on some of the tariffs and that in and of itself would give a little boost to the American and global economy.”

The world’s two largest economies have been embroiled in a trade conflict for more than a year, with each country applying tariffs to billions of dollars’ worth of goods from the other.

Both sides remain far from an agreement on a number of key issues, with trade negotiations in stop-start mode for the better part of the last 18 months.

The Chinese and American delegations decided in October to work toward a “phase-one” agreement. Official Commerce Ministry statements indicate that reaching such a deal involves agreeing on greater Chinese purchases of U.S. agricultural products, and a rollback of retaliatory tariffs.

Trump has also angered European allies with tariffs on foreign steel and other products, and is now threatening a 100% tariff on French luxury handbags, cheese and champagne in retaliation for France’s 3% tax on major digital services companies ⁠— many of which are American ⁠— operating in the country. France and other EU companies have said they’re ready to hit back, and promise to take Trump’s tariff threats to the WTO.

Trump reversal?

Haass sees at least a partial solution on the horizon, however, with much of the power in Trump’s hands to reverse the global trade he’s accused of setting off.

“I imagine there will be some sort of a limited trade deal with China. It won’t deal with all of the fundamentals but you’ll have a limited agreement that will increase some American exports to China,” he said before adding, “There’s a decent chance we will get the U.S.-Canada-Mexico agreement through Congress, there’s a decent chance we’ll also get a U.S.-Japanese bilateral agreement.”

“So you add these up and (Trump) could have a bit of progress on the trade front. And again, if he wants to he can ease up on tariffs say versus France or anybody else, if he wants a bit of an economic boost,” Haass added.

Recently appointed IMF chief Kristalina Georgieva in October described the global economy as now being in a “synchronized slowdown,” predicting slower growth in “nearly 90% of the world” this year.

“Even if growth picks up in 2020, the current rifts could lead to changes that last a generation — broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems,” Georgieva said.

⁠— CNBC’s Evelyn Cheng contributed to this report.



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