The economy of the United States is booming. But with tariffs under the disguise of national security and the escalating U.S.-China trade conflict, President Trump’s trade policy poses both a threat to the U.S. as well as the global economy. The Democrats could gain the majority in the House of Representatives in the upcoming mid-term elections. But hopes that the United States will return to a more liberal trade policy are likely to be disappointed.

The economy in the United States is doing more than well. After the Gross Domestic Product (GDP) grew to 2.2 percent in the first quarter of 2018, second-quarter growth accelerated notably to an annual rate of 4.2 percent. In the third quarter, the U.S. economy grew with 3.5 percent again stronger than expected. But the upswing might soon come to a close. From 2020, the economy is expected to weaken. Increasing debt, an appreciation of the Dollar as well as a widening trade deficit pose considerable risks to the U.S. economy. Furthermore, President Trump’s trade policy dampens both the growth potential of the U.S. and global economy.

A Protectionist Trade Policy Agenda
The United States’ withdrawal from the Transpacific Partnership (TPP), the re-negotiation of NAFTA and tariffs on steel and aluminum signal a clear and certainly concerning break in the traditional trade policy of the United States. In his quest to bring jobs back to the United States, Trump has aligned himself with protectionism, grounded in claims of national security concerns. The trade conflicts between the U.S. and the People’s Republic of China, the EU and other countries have considerably increased uncertainty in the global economy.

The United States, Mexico and Canada have come to an agreement on the U.S.-Mexico-Canada Agreement (USMCA) as the follow-up treaty to NAFTA. A complete termination of NAFTA or bilateral trade agreements would have been extremely damaging, leading to a fragmentation of the North American market. However, the contents of the agreement give cause for serious concern. In terms of market access, USMCA represents a significant step backwards compared to NAFTA.

Upcoming Midterm Elections
The Democrats could win the majority in the House of Representatives in the upcoming midterm elections on November 6, while the Republicans are likely to defend their majority in the Senate. President Trump could thus continue to count on the Senate, for example, for nominations for his administration. However, larger legislative proposals are likely to fall by the wayside. An exception could be the urgently needed infrastructure reform finding bipartisan support. Those, who hope for a change in trade policy, are likely to be disappointed, however. German industry will continue to face up to harsh headwinds from Washington as many Democrats support the presidential trade agenda.

Source: BDI