Tag Archives: trade wars

Trump has declared war on China. It’s a trade war, not a shooting war. But the fallout will still be devastating and it will reach every corner of the globe.

The markets rallied on the news that Trump had blinked. He had reduced everyone’s tariffs to a blanket 10 percent—plus 25 percent for cars, aluminium and steel—except China.

Then tariffs on Chinese goods went up. China retaliated. They went up again. As of this writing tariffs on China stand at 145 percent. And Chinese tariffs on US goods are at 84 percent.

That effectively means that the world’s two biggest economies, who between them control 49 percent of global trade, have locked themselves out of each other’s markets. American farmers who rely on China for their sales will be left with crops rotting in the fields. And American shops that sell everything from t-shirts to I-phones will be left with the choice of either empty shelves or more than doubling their prices.

Trump promised to bring inflation down. It will go up. So will interest rates as the Federal Reserve Bank tries to control spiralling prices. Which means that mortgages and business loans will rise. As business costs rise so will unemployment.

These problems will extend far beyond American shores. There is more than a grain of truth in the saying “when American sneezes the rest of the world catches a cold.”

But there is more. If America can’t sell to China and China can’t sell to America then where will all the soybeans, wheat, steel, cars, computers… go. The answer is Europe, the UK, Japan, Australia, New Zealand, South Korea and India. This means that those countries goods will have to compete against Chinese and American businesses forced to dump their surplus output on third country markets. And, of course, all those countries will have to pay tariffs to export to America.

And there is more. Trump claims that the tariffs will increase foreign investment in America. Companies, he says, will build factories in the US in order to avoid US tariffs and sell to Americans. But will they? Most major businesses these days think in global not national terms. America is sealing its market off from the rest of the world and, anyway, it is quite likely to be in recession. Finally, foreign businesses crave economic stability. Trump’s up, down, in, out, unhinged shoot-from-the-hip economic policies are creating chaos rather than stability.

Perhaps most worrying of all, is the bond market. Bonds are effectively loans. US Treasury bonds are loans made to the US government to finance America’s trade deficit. At the beginning of the month America’s foreign debt stood at $7.9 trillion. Half of the debt is held by governments. Japan, China and Britain being the top three.