Global Economy Heading into a Storm
U.S. President Donald Trump may be telling the world it is safer from a nuclear war thanks to his budding friendship with North Korean dictator Kim Jong Un but fears of a Trump-led trade war is putting the global economy at risk.During the two-day meeting of the Group of Seven members, a visibly hostile President Trump accused Canadian Prime Minister Justin Trudeau of being dishonest and weak.During the summit, other G7 members tried to get President Trump to reverse his crippling new tariffs on imported steel and aluminum. Trump, the so-called great deal maker, doubled down and suggested to world leaders that they should eliminate all trade barriers, tariffs, and subsidies. Trump also threatened to stop trading with them. Big threats coming from the world’s biggest economy.Trump’s threats, whether he follows through on them or not, are all that is needed to cobble confidence in the global economy.
Damaging Impact to Global Economy
A worldwide escalation of tariffs could result in trade losses equivalent to what we experienced during the recent global financial crisis.Roberto Azevedo, the Director-General at the World Trade Organization (WTO) said, “The rising trade tensions that we see before us, they risk a major economic impact, undermining the strongest sustainable period of trade growth since the financial crisis.”That sounds dire, and it could be. If political leaders live up to their trade war threats, which includes U.S. tariffs of 25% on $100 billion in Chinese goods; 25% tariffs on steel and 10% tariffs on aluminum from Canada, Mexico, and the European Union.The tariffs on Chinese goods alone would knock a full percentage point off global economic expansion in 2019. Right now, the World Bank is projecting a three percent expansion next year, which could easily be revised much, much lower.China meanwhile has threated to impose duties on several U.S. commodities, including oil. Oil alone accounts for $1 billion in business each month.China, the world’s second largest economy, isn’t really all that afraid of a trade war with Trump; even when it comes to oil. It would simply replace U.S. crude with Iranian oil, which would not sit well with Trump. But what can he do? He started the trade war—other countries are simply responding in kind.President Trump might think he’s the master when it comes to the art of the deal, but when it comes to a trade war, there are never any clear winners.
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