Mnuchin Dismisses Data Showing Trade War Pain

WASHINGTON — Treasury Secretary Steven Mnuchin said on Monday that President Trump’s tariffs on Chinese imports were having no impact on the United States economy, an assertion that was at odds with a raft of increasingly gloomy economic data and industry surveys.

The Trump administration has already imposed tariffs on $360 billion of imports from China and is preparing to tax another $160 billion worth on Dec. 15. Mr. Trump’s levies have begun to hit consumer products including furniture, televisions and bicycles, prompting retailers and manufacturers to warn of lower sales and profits going forward. The administration has greenlighted $28 billion in bailouts to help struggling farmers who have lost sales as a result of Chinese retaliation.

The United States and China are expected to resume high-level trade talks next month, and a deal could ultimately be reached. But Mr. Mnuchin suggested that the administration saw no downside to keeping the trade war going, dismissing the idea that Mr. Trump’s tariffs were doing any damage to the United States economy.

“It’s fair to say it’s impacted the Chinese economy,” Mr. Mnuchin said on the Fox Business Network. “We have not yet seen any impact on the U.S. economy.”

Mr. Mnuchin’s comments dovetail with those of Mr. Trump, who has continued to insist that the trade war is hurting China more than the United States, which is taking in billions of dollars in tariffs.

But the Treasury secretary’s view seems increasingly divorced from economic data, which is showing pain from a trade war that has lasted more than a year.

Last week, the Institute for Supply Management survey showed that manufacturing activity in the United States contracted for the first time since 2016 and employment growth was moderating. An index of trade uncertainty released by the International Monetary Fund on Monday showed that world trade uncertainty, which it attributes to sluggish global growth, had surged tenfold from previous highs in the last year after two decades of stability. Countries from Germany to Australia are feeling the effects of the trade war, contributing to a slowdown in a global growth.

The Federal Reserve has also cited Mr. Trump’s trade war as a threat to the economic expansion, and the central bank is widely expected to cut interest rates for a second time at its meeting this month as it tries to insulate the American economy.

The Treasury secretary allowed that certain companies had been feeling the pinch from higher taxes on their imports from China. But he said the administration was managing this through an exemption process that allowed companies to avoid certain tariffs to help mitigate the effect. He also repeated his assertion that the depreciation of China’s currency, the renminbi, had “paid for the majority of the tariffs” by making Chinese goods cheaper to buy.

American importers, who bear all the costs of the tariffs, have not been buying that argument.

“It is the U.S. importer which technically pays the tax,” said Brad Setser, a Council on Foreign Relations fellow and former Treasury Department economist. “The extent that other countries pay for a share of the tax, it is because the tax induces them to reduce the price they charge to the United States.”

Mr. Setser also noted that import prices on goods coming from China have dropped modestly in the last year even as Mr. Trump has increased tariff rates, suggesting that currency fluctuations are not covering much of the cost of the new taxes.

“It has not paid for the majority,” Mr. Setser said of the tariffs.

Business groups representing a wide range of sectors, from retailers to soybean growers, have blamed the tariffs and China’s retaliation for disrupting their supply chains and slowing their sales and hiring.

Challenger, Gray & Christmas, the staffing company, said in a report this month that businesses were laying off thousands of workers because of uncertainty related to the tariffs.

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China,” said Andrew Challenger, the company’s vice president. “In fact, trade difficulties were cited as the reason for over 10,000 job cuts in August.”

In an analysis of earnings calls of big companies this summer, the U.S. Chamber of Commerce found that tariffs were mentioned more than 650 times by executives. Manufacturing, industrial and retail companies expressed the most concern about the tariffs, which the chamber called a “major threat” to the longest economic expansion in American history.

Goldman Sachs economists wrote in a note to clients on Monday that its economic growth projections for the second half of the year were down half a percentage point from the first half as a result of the trade dispute with China.

“The most plausible reason for the slowdown is the escalation of the trade war since May,” wrote Jan Hatzius, the bank’s chief economist.

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a research note on Monday, titled “The Trade War Is Hurting,” that he expected employment growth to slow further in the coming months. The fact that business sentiment was being depressed by the trade war rather than fears of rising interest rates made the trajectory of the economy even harder to project.

Mr. Shepherdson said on Twitter that he believed Mr. Mnuchin was being disingenuous in his characterization of the impact of the tariffs.

“It’s fair to say that Mnuchin is either clueless or compromised by his love of proximity to power, or both,” Mr. Shepherdson said. “I’m going with both.”

Mr. Trump and his top economic advisers have publicly tried to put a positive spin on the trade war, saying it is having little to no effect in the short term and will pay off in the long term.

“If we can get a good deal, a deal that’s good for us, we’ll sign it,” Mr. Mnuchin said on Monday. “If not, the president is perfectly fine with continuing the tariffs, which are raising significant amounts of money for the U.S. Treasury.”

Mr. Mnuchin added on Monday that the economic concerns were overblown and that success was relative.

“These numbers have volatility on the upside and the downside,” he said. “There’s no question that our growth is significantly higher than the rest of the world.”

But while they express optimism in public, some of Mr. Trump’s advisers have begun to caution him about the potential economic impact from a long-running trade war. That includes Mr. Mnuchin, who has privately tried to prevent Mr. Trump from escalating his trade fight with additional tariffs.

Economists in the administration have been carefully tracking economic data and considering strategies to spur growth, including a potential payroll tax cut. Mr. Trump has called for additional tax cuts and has repeatedly pressured the Fed to cut rates more aggressively to stimulate an economy that he says is firing on all cylinders.

Mr. Mnuchin acknowledged that slowing global growth could have a “moderate impact” on the United States economy, though he has previously insisted that any slowdown is unrelated to the trade war. But he said he remained optimistic that the passage in Congress of a trade pact with Canada and Mexico would jump-start the economy and that a deal with China remained a possibility.

Source: NYT

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