In such a world, anything that disrupts imports — whether it’s tariffs or a virus — raises production costs, and as a result if anything hurts manufacturing. Indeed, a recent study by the Federal Reserve found that Trump’s tariffs, which were concentrated on intermediate goods, have reduced, not increased, manufacturing output and employment. Sure enough, while overall economic growth in 2019 was decent (not great), manufacturing is in a recession. (And the uncertainty created by the trade war may explain why business investment is down despite a huge cut in corporate taxes.)
As I said, some of Trump’s people seem to have gotten an inkling here. Last week the White House basically admitted that tariffs on steel and aluminum have done more harm than good, hurting industries that use these materials. But the administration’s answer isn’t a reconsideration of its policies — it is to impose more tariffs, on a wider range of products.
Which brings me back to the coronavirus. Let’s leave aside the public health issues — although the Trump administration has clearly left us much less prepared than we had been to deal with these issues if they become serious — and focus on the economics.
What we can say is that if the virus seriously disrupts Chinese production, its impact on the U.S. economy will be like an extreme version of Trump’s trade war, except without any compensation in the form of tariff revenue. And the two things we know about the trade war are that it has been an economic bust and that Trump’s officials still appear clueless about why it has been a bust.
Bear in mind that so far Trump has been remarkably lucky. Aside from Hurricane Maria — which he mishandled, and in which thousands of Americans died — he has faced essentially no crises, domestic or foreign, that weren’t of his own making. And he has surrounded himself with the gang that couldn’t think straight, which raises severe doubts about how well he would handle a crisis that he didn’t create himself.
If Wilbur Ross’s boneheaded remarks on Thursday are any indication — and I fear they are — the Trump administration is even less prepared to deal with the economic fallout from a possible pandemic than it is to deal with the public health crisis. Be afraid.
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