A trade war will affect the global economy significantly. A trade war starts when a nation attempts to protect a domestic industry and create jobs. this is when a nation imposes tariffs or quotas on imports and foreign countries retaliate with similar forms of trade protectionism. It also triggers inflation when tariffs increase the prices of imports. In the long run, a trade war costs jobs and depresses economic growth for all countries involved. A trade war between the United States and China will affect the global economy significantly and unsettle financial markets, said Finance Minister Heng Swee Keat.
does trade war affects the global economy
President Donald Trump threatened to ratchet up the trade battle with China. The Trump administration has already imposed tariffs on $34 billion of goods, prompting in-kind retaliation by China. The S&P 500 SPX, -0.55% is up 3.3% in July and around 5% in the year to date, trading around 2.3% below its all-time high set in late January.
The U.S.-China trade war could escalate quickly, ultimately affecting over $600 billion in trade. As policy uncertainty rises, tariffs filter through to consumer prices and inflation rises 0.3. However, with demand faltering and exports slowing under the weight of increased trade barriers, inflation would fall back below the baseline.
Trump’s Trade War
President Trump announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. Stock markets around the world tumbled in fear of a trade war between the world’s three largest economies. The Commerce Department reported that dependence on imported metals threatens the U.S. Eight countries have filed formal complaints with the World Trade Organization. They say Trump cannot justify the tariffs on the basis of national security.
The golden run comes to an end
If there were an all-out trade war, it would be very difficult for investors to focus very directly just on the fundamentals, the geopolitical environment would be very uncomfortable. The US has got a temporary shot in the arm from tax cuts, but growth is cooling in China. Factory activity in Japan grew at the weakest pace since 2016 and, in the UK, where Brexit is another complication, manufacturing output expectations weakened, as have investment intentions. In the 19-nation euro area, IHS Markit’s monthly survey showed growth softened in July on weaker new orders and deteriorating confidence.
Measured by estimates of private consumption expenditure, Asia today is just about as big as the U.S. If Japan is excluded, Asia’s growth is three times faster. Not surprisingly China is now the largest market for an expanding list of countries, which includes South Africa, Australia, Brazil, Russia, South Korea, and Indonesia, among others. This is a mere three years away, according to the IMF and the Bureau of Business Analysis at the U.S. Department of Commerce.
The Japanese economy is forecast to cool to 1%, marking the slowest growth rate among advanced nations. The IMF said China would continue to grow at the slower rates it forecast back in April, of about 6.6% this year. The IMF also warned of risks as the Federal Reserve prepares to raise interest rates.
Causes of U.S. Trade War with China
In 2017, the United States exported $130 billion to China. China is the world’s No.1 exporter. China has a lower standard of living, which allows its companies to pay lower wages. American companies can’t compete with China’s low costs, so it loses U.S. manufacturing jobs. The three largest export categories are aircraft at$12 billion; $16 billion; soybeans, and automobiles, $11 billion. The U.S. a lot of the imports are from U.S. manufacturers that send raw materials to China for low-cost assembly.
Trade worries ‘intensify markedly’
Trade tensions are threatening global growth, echoing multiple warnings from around the world. The euro-area composite Purchasing Managers Index for manufacturing and services fell to 54.3 from 54.9 in June. In China, concern has reached such a level that authorities unveiled a package of policies to boost domestic demand to cushion the economy from the fallout from the trade dispute. The pressure on the economy may only be beginning. “Given the waning growth of new business and a further slide in business optimism, the outlook has also deteriorated,” said Chris Williamson.