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Will Trump's tariffs start to add up?

Damage could threaten gains

WASHINGTON — President Donald Trump’s escalating tariffs on imports to the United States could potentially imperil one of the most resilient economies in American history.

Until now, the economy has largely shrugged off damage from Trump’s trade wars. Even as Trump piled import taxes on everything from Turkish steel to Canadian aluminum to Chinese burglar alarms, the job market has remained sturdy. At 3.6%, the unemployment rate is at its lowest point in a half-century. By July, the expansion that followed the Great Recession will become the longest on records dating to 1854.

But over the past month, he’s more than doubled tariffs on $200 billion in Chinese imports. He’s preparing to tax an additional $300 billion in goods from China, extending his import taxes to everything Beijing sells to the United States.

And Trump said he would impose a 5% tax on Mexican imports starting Monday — a tax that would reach 25% by Oct. 1 if the Mexican government fails to stop a flow of Central American migrants into the United States.

The new tariffs on Chinese and Mexican imports amount to potentially $190 billion a year in new taxes — paid by U.S. importers and typically passed on to consumers. And exporters, especially farmers, can expect to suffer retaliation if China and Mexico hit back with tariffs on exports from the United States.

The tariffs also generate uncertainty for American businesses over where to buy supplies, sell goods or situate factories and offices. And they rattle investors and undercut consumer and business confidence.

Researchers at UBS calculate that a 25% tariff on all Chinese imports would shave a full percentage point from U.S. growth over the next year. The economy grew 2.9% in 2018 and will likely be weaker for 2019. Add a 25% tax on Mexican goods, they say, and the United States could tumble into recession for the first time since 2009.

Federal Reserve Chairman Jerome Powell made clear that the Fed is prepared intervene, likely by lowering interest rates, if the trade wars were to threaten the expansion.

It’s far from sure that Trump’s trade conflicts, even if they escalate, will imperil the economy. Pinelopi Goldberg chief economist of the World Bank, and economists Pablo Fajgelbaum of UCLA, Patrick Kennedy of the University of California, Berkeley, and Amit Khandelwal of Columbia University, calculated that the economic loss from the trade wars last year amounted a minuscule 0.04% of gross domestic product — the broadest gauge of economic output.

Exports and imports combined equal just 27% of U.S. GDP, the World Bank calculates. The share is lower in only seven other countries, none of them an industrial power like the U.S.

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