President Trump’s trade war is causing significant uncertainty for businesses. This is likely depressing investment, as I discuss in my latest Bloomberg column.

New research suggests that the trade war follows this pattern. Economists at Goldman Sachs looked at data from 70 industries, and found that the sectors with the highest share of total sales in China had markedly lower capital expenditures in early 2018, when trade tensions began to escalate. Over the previous two decades, those same industries invested relatively heavily.

The trade war appears to be slowing capital expenditures. pic.twitter.com/QjWIyBpWZz — Michael R. Strain (@MichaelRStrain) August 12, 2019

One consequence of this uncertainty is to counteract the pro-investment incentives in the president’s signature corporate tax cuts. Another consequence is to depress economic growth, hurting the president’s reelection chances.

Much of the uncertainty is driven by the president’s erratic behavior.

The U.S. had been imposing a 25% levy on $250 billion in Chinese imports. In June, Trump agreed not to impose additional tariffs and to restart trade negotiations with China. Earlier this month, he abruptly changed his mind, instituting a 10% tariff on the remaining $300 billion of U.S. imports from China, effective Sept. 1. But then came Tuesday, when he delayed much of this action until December. “We’re doing this for the Christmas season,” the president explained. “Just in case some of the tariffs would have an impact on U.S. customers.” This is a shocking reversal from his longstanding insistence that his tariffs don’t have a negative effect on the U.S. Who can tell what he’ll do next? Will something he sees on cable news goad him into reversing the delay? Will he raise the new tariffs to 25%? Or higher? For businesses in this environment, the option value of delaying investment decisions is quite high.

Check out my column for my full argument. Your comments, as always, are very welcome.