Infinity war on trade
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.