Trump’s trade policies would send US into recession, study says

Clinton’s approach would be ‘harmful’, Trump’s ‘horribly destructive’
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US Republican presidential candidate Donald Trump’s protectionist trade policies would send the US into recession, result in the loss of almost 4.8m private sector jobs and lead to shortages of consumer goods such as iPhones, according to the most detailed study yet of his plan.

The study released on Monday by researchers at the non-partisan Peterson Institute for International Economics illustrates how, even as the New York businessman pledges to boost growth and create millions of jobs, most mainstream economists view his economic policies as dangerous quackery.

The study also offers a sceptical view of Democratic candidate Hillary Clinton’s trade policies, and particularly her opposition to the Trans-Pacific Partnership, a vast new Pacific Rim trade pact the US has negotiated with Japan and 10 other economies. 

But Mr Trump’s threats to rip up existing US trade agreements and impose punitive 45 per cent tariffs on goods from China and a similar 35 per cent levy on products imported from Mexico would probably set off a trade war and wreak huge damage on the US economy, the study found. 

“While [Mrs] Clinton’s stated trade policy would be harmful, [Mr] Trump’s stated trade policy would be horribly destructive,” said Adam Posen, the institute’s president. “His stated approach to the global economy of waging trade war and protecting uncompetitive special interests would be disastrous for American economic wellbeing and national security.” 

Mr Trump in a speech last week pledged to boost US growth to almost 4 per cent and create 25m jobs if he was elected. But the Peterson study shows that if he delivered on his trade policy promises and America’s trading partners responded in kind, as would be likely, the US economy would end up in recession within two years as consumption, investment and government spending all contracted. 

Such a trade war would also hit the blue-collar workers to whom Mr Trump has pitched his trade policies hardest. 

The biggest trade-related employment impact, the researchers found, would be in manufacturing and on states such as Washington, home to aircraft maker Boeing, and places such as Los Angeles, where the city’s port is the arrival point for much of the trade with China. Were China to retaliate and stop purchasing US aircraft, for example, it would result in the loss of 179,000 jobs, they calculated. 

But the biggest impact on jobs would come as the consequences of a trade war reverberate out across the economy hitting retail distribution hubs, grocery stores, restaurants and even hospitals, the study found. 

It also would likely lead to shortages and higher prices of consumer goods — including popular products such as smartphones — and potentially even have an impact on US retirement savings. 

Because China extracts relatively little of the value of Apple’s popular smartphone, which is assembled in the country, for example, “the iPhone could be China’s secret weapon in retaliation,” the researchers wrote. “China’s self-inflicted losses would be minimal, but cutting off supplies to Apple could severely disrupt the availability and increase the price of a beloved consumer product.” 

“In light of the ubiquity of Apple stock in [US retirement] plans, this action could adversely affect Americans’ retirement plans as well,” they wrote. 

The researchers cited studies that have shown it would be impossible to build an iPhone from scratch in the US and that even if Apple were able to do so the additional cost would be about $100 per phone. 

“Moreover, with Chinese firms moving into the smartphone market, China could disrupt not only the production of iPhones but also supply the alternative models,” they wrote. “The collective howl of pain might induce even the most ardent protectionist to reconsider.” 

In a statement, the Trump campaign called the Peterson study a “globalist hit job”.

“The Peterson Institute dresses up propaganda in a wardrobe of “scholarship” that shamelessly promotes globalism and criticises anyone who dares oppose it,” Trump advisers Wilbur Ross and Peter Navarro said.

Rather than provoke a trade war, Mr Trump and his threats would lead to negotiations that would “end the undeclared trade war now being waged on American workers by cheaters like China”, they said. “This fear-mongering fails to understand the negotiating power of the US in the world economy.”

US sectors that would be worst affected by a full trade war

SectorPercentage of jobs lost
High-speed drives and gear manufacturing10.2
Construction equipment manufacturing10.0
Iron and other metal ore mining10.0
Semiconductor equipment manufacturing9.7
Other metalwork manufacturing9.6
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