As Wall Street celebrates what will likely be an interest rate cut later this week, it should also sober up fir more bad economic news. The chances of increased tariffs on Chinese goods are incredibly high and some say the only way to save the economy from the trade war is to lower rates.
Analysts say that if the trade war continues, the destruction of the economy will also continue necessitating the interest rate cuts, which the Federal Reserve has stated will only go down a quarter of a point. CNBC’s Jim Cramer pointed out on Tuesday that investors should be prepared for the United States to slap another round of tariffs on Chinese imports.
A tweet from President Donald Trump bashing the country earlier that day on Twitter confused Wall Street, the “Mad Money” host said, causing the Dow Jones Industrial Average to fall more than 23 points and both the S&P 500 and Nasdaq Composite to tumble about 0.25%.
Unfortunately, Americans are suffering the financial consequences of the trade war too, and if it’s “un-American”‘ to point that out, so be it. The costs have fallen squarely on the backs on American businesses and lower-income families who just can’t afford a tax increase and to feed their families. Farmers in the U.S. are also struggling to sell their goods and turn a profit. They have been casualties of the trade war.
“If the trade war with China escalates again, we’re going to need these rate cuts,” Cramer said. “Taunting does not a trade policy make. But it sure does sound like we’re about to get another round of tariffs.”
The U.S. has been engaged in a trade war with China since last year and both countries have imposed duties on billions of dollars worth of goods. Trade officials are in China this week to attempt to make progress on a trade deal, but Cramer says that a series of Trump tweets — which included messages like ”[the Chinese] always change the deal in the end to their benefit” and “we have all the cards” — could derail those efforts and lead to new tariffs on the remaining $320 billion worth of Chinese exports, according to the report by CNBC.
“Believe me … I am very sympathetic to the president’s arguments on China: I’m in favor. He’s not wrong,” Cramer said. “But just because something is true, that doesn’t mean you should tweet it to the entire world. I found the timing terrible.” Businesses will fail to make profits, cut jobs, and perhaps even default on loans if the taxes keep going up. Taxation is a drain on the economy and tariffs are not different in that aspect.
Cramer says that the interest rate cut by the Fed is what will save the economy from the burden of increased taxation.
In Peter Schiff’s book, Crash Proof 2.0: How to Profit From the Economic Collapse, Schiff and co-author John Downes describe the economy as a house of cards on the verge of collapse.
The economic and monetary disaster which seasoned prognosticator Peter Schiff predicted is no longer hypothetical-it is here today. And nobody understands what to do in this situation better than the man who saw it coming. For more than a decade, Schiff has not only observed the economy but also helped his clients restructure their portfolios to reflect his outlook. What he sees today is a nation facing an economic storm brought on by growing federal, personal, and corporate debt; too little savings; and a declining dollar.