Infinity war on trade

Dünya Executive - - REPORT - Murat BASBOGA

He’s eccentric, lives and breathes in the real estate universe. Every move he has taken in his presidenti­al term has been motivated by or rooted in constructi­on. He manipulate­s the world via 140-character long tweet messages. That should be enough clues to hazard a guess as to who this person is: Donald Trump, the President of the United States. After a month-long quarrel in Congress about the Mueller investigat­ion, Trump diverted the attention from his dealings to the internatio­nal trade front: the trade war with China.

First, the tweets appeared. Then the decision to increase the 10 per

cent tariffs to 25 percent on $200 billion of selected Chinese goods, published on May 9 in the Federal Register, the official gazette of U.S. Government. At a moment when the world economy is gradually slowing, the increased tariffs will topple the delicate balance in trade into an unmanageab­le mess. As Trump made the u-turn of 40 years of trade with China and signaled ‘no-rush’ to fix the issue, the protracted debate about the issue will hurt everybody, including Trump’s own base. Also, it may trigger inflationa­ry pressure in the U.S., with the costs primarily passed along to businesses and consumers through higher prices.

So far, the tariffs have hardly put a dent in the U.S. economy. But imposing tariffs of 25 percent on all Chinese imports could reduce U.S. growth by 0.3 percentage points, enough to slow U.S. growth to below 2 percent by the end of 2019, according to Gregory Daco, chief U.S. economist of Oxford Economics, a global research firm.

Even if confined to the U.S. and China (for now), the Euro area would be impacted through trade uncertaint­y, trade spillovers and the foreign exchange front. In the benign scenario, a U.S.-China deal will be struck soon-ish, leaving analysts’ forecasts obsolete. President Trump’s brinkmansh­ip would mean flat-lining growth in the foreseeabl­e future. I borrowed the headline from the recent blockbuste­r full of superheroe­s; Avengers: Infinity War. Careful not to give any spoilers about the last Avengers movie, I think that the tariff increase is like an ignition of the second phase of the trade war - which started early 2018 - between the world’s top two economies. And that war may go far beyond what we imagined.

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