Question

Hello, I am trying to do a critical analysis of the article below using economic or microeconomic concepts and tools. Please can you read the article and tell me the key ideas of the article that can be helpful and the concepts ( or themes) on microeconomic that I can use to do the critical analysis of those ideas? Thanks

Economists Worry a Trade War Could Derail U.S. Growth

Forecasters surveyed by The Wall Street Journal predict healthy growth in 2018, but 51% see risks tilted to the downside

By

Ben Leubsdorf

Updated March 15, 2018 10:27 a.m. ET

Economists estimate President Donald Trump’s steel and aluminum tariffs will reduce U.S. employment only modestly, but increasingly worry that foreign-trade disputes could escalate and damage the U.S. economy.

Forecasters surveyed in recent days by The Wall Street Journal continue to expect solid economic growth this year, but see rising odds that growth will come in below expectations. Just over half said risks were tilted to the downside, jumping from 30% in February and the highest share since September. Even generally optimistic economists cited trade policy or protectionism as risks to the outlook.

“With everything looking better coming into the year, trust politics to risk messing it all up,” said Scotiabank economist Derek Holt.

Most forecasters said the 25% tariff on imported steel and 10% tariff on imported aluminum that Mr. Trump unveiled last week would reduce overall employment in the U.S., as gains in the domestic steel and aluminum industries would be outweighed by losses in sectors that purchase those metals.

The average change in net employment expected due to the tariffs was about 53,000 jobs lost—a relatively modest number in an economy that added nearly 2.2 million nonfarm jobs during 2017, and 313,000 in February alone.

The economists predicted a larger effect if other countries retaliate with limited tariffs of their own: roughly 137,000 jobs lost on average. If tit-for-tat retaliation escalated, raising global tariff and nontariff barriers to levels last seen in the early 1990s, before the creation of the North American Free Trade Agreement and the World Trade Organization, the economists on average saw 845,000 jobs lost.

There was an enormous range of job-loss estimates for that last scenario, from as few as 10,000 to as many as five million, suggesting significant uncertainty about the possible consequences of a trade war.

Jim O’Sullivan of High Frequency Economics predicted two million American jobs would be lost in a trade war. “I would not express much confidence in that number, but it would not be a good outcome,” he said.

Mr. Trump’s decision to impose steel and aluminum duties, and the resignation of antitariff Trump economic adviser Gary Cohn, could presage further changes in U.S. trade policy. Lawrence Kudlow, who will replace Mr. Cohn as director of the National Economic Council, differs with Mr. Trump on trade. Still, he said Wednesday: “I personally hope widespread tariff use—it doesn’t come to that. But in some cases, it will.”

Economists have traditionally favored international trade, believing it brings overall benefits even if some individual workers and industries are hurt. Mr. Trump, a longtime skeptic, tapped into discontent with the costs of trade during his successful campaign for the presidency in 2016.

“The workers who poured their souls into building this great nation were betrayed,” Mr. Trump said at the White House last week. “But that betrayal is now over.”

Economists on average this month said the probability of the Trump administration pulling the U.S. out of Nafta was 29%. That was up slightly from November, when economists on average pegged the probability of a Nafta withdrawal at 26%.

The overwhelming majority of forecasters said withdrawing from the trilateral trade pact would leave U.S. economic growth weaker in both the short and long run, and a few said it could cause a recession.

Negotiators from the U.S., Canada and Mexico have been discussing potential changes to Nafta, which took effect in 1994. Mr. Trump has said that if a deal isn’t reached on Nafta, he will pull the U.S. out of the accord.

Despite mounting trade-related jitters, the near-term outlook for the U.S. economy remained rosy in this month’s survey.

The average prediction for gross domestic product growth in 2018 was 2.9%, accelerating from 2.5% growth in the fourth quarter of 2017 from a year earlier. The unemployment rate, which was 4.1% in February, was expected to decline to 3.9% by midyear and 3.7% by the end of 2018. The average probability of a recession in the next 12 months was 14%, little changed from February.

Economists predicted the Federal Reserve will continue to raise short-term interest rates, with increases expected later this month and in June. Most said tariffs wouldn’t significantly affect the outlook for U.S. inflation, though a sizable minority said they expected import duties would translate into faster price growth.

The Journal’s survey of 59 business, financial and academic economists was conducted March 9-13. Not every economist answered every question.

Write to Ben Leubsdorf at [email protected]

Answer 1

The article is based on recent decision of USA on steel and aluminium import tariffs. This could bring a trade war because according to WTO rules any sort of tariffs in international trade shouldn't be imposed. But Trump's decision to protect his domestic players of steel and aluminium would cost its growth as well as job opportunities. Farther some countries are exempted from such tariff barriers. But in that case other may follow the dumping method in exporting steel and aluminium to USA.