The Threat of Trade Wars
As readers will be aware Mr Trump is never shy of either a good photo opportunity or seeking to make controversial statements, often against the guidance of his own advisers. Putting aside the recent political events more disturbing has been his increasing desire to risk trade wars with all of the major countries.
Indeed, trade tensions and political instability unsettled European investors during May, with markets being dealt a blow by the news that Mr Trump had decided, after all, to impose tariffs of 25% on steel and 10% on aluminium imports from the EU, Canada and Mexico. The levies affect EU exports that totalled €6.4 billion in 2017.
European Commission President Jean-Claude Juncker criticised the move, commenting: “These unilateral US tariffs are unjustified and at odds with World
Trade Organisation rules… this is protectionism, pure and simple”. Mr Juncker also warned that the US’s decision left the EU with “no choice
but to proceed with a WTO dispute settlement case’’. On past- experience this may be a long procedure.
More specifically the EU has already issued a 10-page list of tariffs on US goods ranging from Harley-Davidson motorcycles to bourbon, whilst Canada indicated
that it had plans to impose tariffs of up to 25% on about $13bn worth of US exports from 1 July. Goods affected will include some American steel, as
well as consumer products such as yoghurt, whiskey and coffee. Interestingly the EU is looking to target specific political seats in America to maximise
The potential for dispute has also widened after Mr Trump threatened tariffs of some $50 billion of imports from China. The list of items identified by America extend to some 1,102 product lines mainly relating to technological industries. Inevitably China has responded by threatening tariffs of its own initially set in the region of $34 billion focused on both cars and agricultural produce, although this is set to expand further in due course.
Whilst markets remain concerned with the potential for expanding trade wars, negotiations continue to prevent these escalating further. This should also be seen in the context of continuing positive economic data. Whilst economic growth slowed in the first quarter of 2018 in the eurozone, on an annualised basis the eurozone still grew at an annualised rate of 2.5%.
In America the Federal Reserve raised US interest rates by 0.25% and said it expected two more interest rate rises this year. Fed chairman Jerome Powell said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity. Indeed, this backdrop of economic stability and growth partly accounts for President Trumps recent aggressive economic stance.
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By Sabre Financial | Monday, July 30, 2018