David Dollar: The trade war has started and we already saw some skirmishes with US tariffs on aluminum and steel, washing machines, solar panels, this was all rather minor. Now the US is imposing a 25-percent tax starting today on $34 billion of imports from China, but pretty soon another $16 billion gets to added to that and China immediately retaliated. So, this is still a moderate amount of trade, but I would say this is the biggest trade war since the 1930s and this is pretty serious.
Sputnik: Who is it serious for, who should be worried?
David Dollar: Well, I think both sides are going to be hurt, in the short run probably China more than the US. It happened that as this year started, the US economy was accelerating because of fiscal stimulus and the Chinese economy was slowing down because they are trying to tighten their monetary conditions and reduce leverage to their economy. So each economy was at a different point in the cycle. So in the short-term sense, it's easier for the US. This is not going to have a big effect on US growth during 2018. It's not going to have a big effect on China either, since China was already slowing down, so even a modest effect is going to be felt there.
Sputnik: China is actually launching its retaliatory tariffs that are going to be targeting the agricultural sector, I think, primarily in the US. They are thinking about Donald Trump's base. What do you think is going to happen with the sentiment and support for Trump in the base? Do you think that's an effective tactic that China has chosen?
David Dollar: It happens that of what US exports to China comes from what we could call "Trump country." A lot of agricultural products, as you say, but the US also exports quite a bit of automobiles and automobile parts, some of those come from the old Rust Belt. A lot of modern auto production in the US is down in the southern part of the United States. So, states like Tennessee and South Carolina, they have a lot of manufacturing production, some of which is sold to China.
So it's natural just in picking out products, it's natural for China to hit at some of the Trump base. I think that is a smart strategy for China, but I don't think it's going to have an immediate effect. I think those areas are very-very pro-Trump and I don't think they are going easily switch over because they feel a little bit of economic pain. Certainly, the president is betting that his base is going stick with him, that the whole motion of getting tough with China is popular. So, he's taking a bit of a gamble, but I don't see those locations easily switching away from Trump just because they feel a little economic pain.
Sputnik: What do you make of Trump's strategy? Do you think this going to be effective in getting some kind of good concessions for US trade or for the US economy?
David Dollar: No, I think that China experts are pretty much united in thinking that this is not an effective strategy. So, China immediately retaliated. If the US does more, if the US comes in with another $200 billion of imports that are taxed, China can't reciprocate exactly, because they don't import that much from the US. But they have other ways of hurting US companies that are invested there. So, I am convinced China will continue to do tit-for-tat retaliation and that creates a risk that this all escalates. During 2018 the US economy is in a very good shape, so it can afford a little bit of a hit but as you move in to 2019, then I think it starts becoming a losing strategy for the administration.
The views and opinions expressed by David Dollar are those of the speaker and do not necessarily reflect those of Sputnik.