Fortune - USA (2019-12)

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FORTUNE.COM // DECEMBER 2019

in peril, believes Christine Lagarde, former

head of the International Monetary Fund and

now chief of the European Central Bank. “I

was brought up as a citizen of the world,” she

recently told 60 Minutes. “The risk I see is that

the United States is at risk of losing leadership.

And that would be just a terrible development.”

It’s unclear exactly how badly the trade

war is stunting America’s economic growth,

in part because Trump is continually making

and withdrawing threats of new tariffs, raising

and lowering threatened tariff rates, or putting

a scheduled tariff increase on hold, as he did

recently, because negotiations had yielded “a

substantial phase-one deal” with China, “sub-

ject to getting it written.” UBS chief economist

Seth Carpenter issued a particularly gloomy

forecast in September, predicting the trade war

would drive U.S. economic growth down to a

0.3% annual rate by next year’s second quarter.

Whatever the damage, some fear it could

persist for years. “What Trump has done to

undermine our global leadership in terms of

major multinational companies will be hard

to undo,” says a former Republican cabinet

member. “It’s smashing supply chains. Why

should anyone want a U.S. company to be a

supplier anymore? Why should Daimler want

to build a plant in South Carolina anymore?

He’s undermining our long-term prosperity.”

The concern is bipartisan. Jason Furman,

a Harvard professor who chaired President

Obama’s Council of Economic Advisers, wor-

ries that the trade war “is not just a short-run

harm but threatens to create lasting uncer-

tainty about things like supply chains. The pro-

cess of decoupling from China isn’t just about

paying a little more for things from China.”

The conflict is damaging more than just the

U.S. Because it involves the world’s two other

biggest economies, China and Europe, it’s

hurting commerce worldwide. Global growth

will drop to 3% next year, predicts the Inter-

national Monetary Fund, the slowest growth

since the financial crisis. The No. 1 culprit:

“rising trade barriers.”

The global perspective helps explain why

the American steel industry, which spent years

lobbying for tariffs on steel imports, is worse

off today than it was before Trump granted

especially worrisome because consumer spending is the strongest
force keeping the U.S. economy growing.
Trade is intertwined with America’s overall international rela-
tions, a fact that further worries businesspeople as they see Trump
spurn longtime allies—members of NATO and the G-7, the Kurds
in Syria, even Canada. “International trade is best executed with
strong and reliable relationships with allies,” says Steve Caldeira,
CEO of the Household & Commercial Products Association, an
industry lobbying group. “That requires American global leadership,
not a retreat to isolationist policies.” America’s leadership is already

REAL GDP PERCENTAGE CHANGE, ANNUAL RATE

2017 2018 2019 2020 2021

*PROJECTED FIGURES ARE AS OF AUGUST 2019 SOURCE: CONGRESSIONAL BUDGET OFFICE

0

1

2

3

4%

ACTUAL

PROJECTED*

The New Normal

Candidate Trump said he’d raise GDP growth to 4% or

more. The real rate of expansion is likely to be half that.

“What

Trump

has done

to under-

mine our

global

leader-

ship will

be hard

to undo. ”

TRADING PLACES