Trump’s trade war with China catches the world in its crossfire

Rethinking America
By Editor_1
President Donald Trump and President Xi Jinping of China at the G20 Summit in Osaka, Japan, June 29, 2019. US-China trade tensions are rippling globally, with China’s export limits hitting European automakers and US tariffs on Chinese-made ships affecting foreign carriers docking in America -Erin Schaff/The New York Times/File

By Patricia Cohen

LONDON — One of the world’s main number crunchers released its latest economic report on Tuesday (14). But the middling forecast from the International Monetary Fund (IMF) doesn’t begin to capture the helter-skelter ride the global economy is on.

Even as the IMF was preparing its report, a flurry of developments was already altering the picture. New US tariffs on imported wood, furniture and kitchen cabinets that are expected to drive up the cost of home building took effect Tuesday. So did the opening round of higher port entry fees that China and the United States will impose on each other’s vessels.

Tuesday’s turn of the trade wheel was just one click in a series of repercussions set in motion by President Donald Trump’s vow to smash the world’s economic order. More will follow.

Last week, Beijing decided to sharply step up curbs on its export of rare earth metals, materials that are essential for the manufacturing of semiconductors, cellphones, wind turbines and nearly every other modern gadget. New restrictions on equipment needed to produce batteries for electric cars are also scheduled to take effect next month.

Trump’s initial fury softened over the weekend, after his response led to the sharpest decline in stocks since April, when the president’s initial barrage of tariffs was announced. Still, his threat to slap an additional 100% tariff on Chinese imports was left dangling.

“The US-China relationship is highly volatile,” said Richard Portes, a professor at the London Business School. “One doesn’t really know what to expect from one day to the next, and that is typical of the current administration.”

The souped-up tension between the two economic superpowers is catching other countries — that is, almost every country — in the crossfire. China’s restrictions on metals and magnets, for instance, would affect European automakers that use those materials and ship them across borders within Europe. And the levies on ships made in China apply even to non-Chinese shipping companies stopping at American ports.

On Tuesday, the Chinese government ratcheted up the retaliation by adding five American subsidiaries of South Korean shipping company Hanwha to its sanctions list, accusing the subsidiaries of “supporting and assisting” the United States in its moves in the shipbuilding industry.

Beijing and Washington are also essentially pressuring nations around the globe to take sides. Mexico, one of the world’s biggest buyers of Chinese cars, proposed a 50% tariff last month on those vehicles after heavy lobbying from the Trump administration.

India, meanwhile, has moved closer to China since the White House, piqued by New Delhi’s continued purchase of Russian oil, imposed tariffs up to 50% on Indian goods. In August, Prime Minister Narendra Modi visited China for the first time in seven years to attend a security and economic conference — a public display by India’s leader that his country has plenty of allies should the Trump administration continue to single it out for punishment.

Since Trump took office, shifts in global trade policy have happened both at high speed and in slow motion, reverberating in broad and unpredictable ways.

When Trump announced his plan this summer to slap 50% tariffs on most steel and aluminium coming into the United States, British steelmakers felt lucky. Their government had already struck a deal that their steel would be tariffed at only half that amount, 25%.

But the mood in Britain darkened considerably last week when the European Union announced its own set of punishing tariffs on steel imported into its 27-nation bloc. The policy delivered a gut punch to Britain’s steel industry, which sends nearly 80% of its exports to the EU.

Britain, though, wasn’t the target of the policy — just a bystander to moves aimed at Beijing and Washington.

The 50% EU tariff was directed at China, which has been accused of dumping underpriced steel on the global market. The tax was also designed with an eye to putting the EU in a better negotiating position with the United States.

“The union is ready to work with like-minded countries with a view to ring-fencing their economies from global overcapacity,” the EU’s executive arm said last week. “We will continue exploring ways of working together with the US”

The protectionist impulse is also going viral, with Canada, Brazil and Mexico taking steps to shield their homegrown steelmakers.

Despite the frequent swerves in trade policy, though, the global economy will remain highly integrated, said Lucrezia Reichlin, a professor at the London Business School, even as the centre of gravity shifts toward Asia and away from the West.

For now, growth is slowing in both the United States and China, while a pervasive unpredictability characterizes the short- and long-term outlooks.

Portes summed up the dynamic between the world’s two largest economies: “China has stable, clear and determined objectives. The Trump administration changes from day to day, in its views and its policies.

“The degree of uncertainty is huge,” he added, “and that has consequences for the global economy.”

-New York Times

Editor_1
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