The Philippine Star

Fallout from Trump’s trade wars felt by economies around the world

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WASHINGTON (Reuters) – The collateral damage of the United States’ trade wars is being felt from the fjords of Iceland to the auto factories of Japan.

Central bank governors and finance ministers traded grim tales of suffering economies at the Internatio­nal Monetary Fund and World Bank fall meetings in Washington last week. Some also noted how far US policy had shifted from the 1940s, when Washington cofounded the IMF.

At that time, “the world economy had been hammered for over a decade by high tariff barriers, depression and war,” prompting then-US Treasury Secretary Henry Morgenthau to champion a global economic system, World Bank president David Malpass told attendees at a session this week.

The US message then, Malpass said, was: “First, there’s no limit to prosperity. Second, broadly shared prosperity benefits everyone.”

As the IMF’s gathering of 189 membernati­ons drew to a close, the unintended negative impacts of the trade wars were becoming clear, IMF managing director Kristalina Georgieva said. “Everybody loses.”

The US, the world’s largest importer, started a bitter tariff war with China, the world’s largest exporter, 15 months ago. US President Donald Trump is also in the midst of renegotiat­ing, and sometimes upending, trade relationsh­ips with many of Washington’s top trading partners.

The fallout will slow global growth in 2019 to three percent, the slowest pace in a decade, the IMF estimated last week.

This pain is not being shared equally. The US remains the least exposed of the world’s 20 largest economies to a drop in exports in part because of its massive domestic consumer spending base.

The damage is being particular­ly felt in European countries which “rely on exports and are open to trade,” the European Union’s Economic and Financial Affairs Commission­er Pierre Moscovici said.

More than 40 percent of Germany’s GDP was derived from exports in 2018, the most of any major global economy. Uncertaint­y in the business community is widespread, German Finance Minister Olaf Scholz told reporters.

German trade group BGA recently revised down its growth forecast for German exports in 2019 to just 0.5 percent, from 1.5 percent. As a result, many companies are scaling back their investment plans, something that will have repercussi­ons for years to come.

Scholz said concerns over Britain’s impending departure from the EU and the bloc’s trade dispute with the US were clearly dampening global economic growth.

“The most important problem remains those factors that we cannot measure – specifical­ly the reluctance to invest,” Scholz said.

The pain is being felt in countries that don’t rely on exports too, such as Iceland, which became the first developed economy to seek aid from the IMF after a 2008 banking collapse. Since then, it has rebuilt its economy in what’s been called a miraculous recovery.

“We have become dependent on tourism,” explained Ásgeir Jónsson, the governor of Iceland’s central bank, with annual visitors growing five-fold to 2.5 million since the crisis. Foreign arrivals, however, have plummeted since the trade wars started, and are down 15.6 percent this summer from the year before.

Iceland, with a population of about 300,000, built foreign currency reserves on the back of the increase in visitors, he said, but those are dropping too.

Trade links between countries have led to a more peaceful world in recent decades, but recent experience shows “you can never take global trade for granted,” Jónsson said.

On Friday, Japan’s Cabinet Office, which helps coordinate government policy, downgraded its assessment of factory output in October.

The softness in production was largely due to car exports to the US turning weaker, after growing steadily until the spring, a government official said at a briefing.

“The pick-up in global growth is being delayed,” Bank of Japan governor Haruhiko Kuroda said. “Japan’s economy is seeing exports weaken significan­tly and that’s affecting factory output.”

The US hasn’t been immune from the impact of the trade wars. American farmers have been particular­ly hurt by Chinese tariffs on US agricultur­al products, prompting the Trump administra­tion to give billions in aid to the farm belt.

 ??  ?? Newly manufactur­ed cars of the automobile maker Honda await export at port in Yokohama, south of Tokyo.
Newly manufactur­ed cars of the automobile maker Honda await export at port in Yokohama, south of Tokyo.

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