The duel between the United States and China threatens again the world economy

LONDON – Normally, concerns about the state of the global economy tend to unite leaders of larger countries to enhance security. But we do not live in normal times.

The increasingly intense conflict between the world's largest economies, the United States and China, has become a major threat to the world's finances. While their leaders openly contemplate how to affect or hinder their plans, the rest of the world is afraid of not becoming the collateral damage of this trade war.

Just a week ago, China and the United States seemed to be moving towards a cooling of hostilities, as the global economic outlook improved. Concerns about the global slowdown gave way to hope for expansion.

Fears about the weakening of the Chinese economy already existed and President Donald Trump announced the signing of a trade agreement to be signed shortly. This has improved the prospects of Asian economies dependent on world trade, such as Japan, South Korea and Taiwan. Europe, source of perpetual anxiety, has also shown signs of renewal. And, despite the skeptics, the US economy has remained.

But at the end of last week, as Trump dramatically increased tariffs on Chinese products by $ 200 billion, the world was facing the possibility that trade war costs a treasure. The concern rose on Monday when Beijing fought back and that the Trump government detailed its intention to impose 25% tariffs on almost all of the goods sent by China to the United States.

For businesses and consumers alike, this raises the possibility of soon having to pay higher prices for goods, a fact that discourages trade.

"A climbing scenario would be terrible for everyone," said Gabriel Sterne, director of global research at Oxford Economics in London. "A negative impact on trade flows is going to be bad for global growth for several years, it's bad news for almost everyone."

If both sides maintain their tariff threats, China's annual economic output will be reduced by 0.8%, while the United States will experience a 0.3% reduction in annual growth, according to Oxford Economics.

These figures are modest overall, but the damage could be badly felt in industries particularly exposed to trade war, such as US agriculture and Chinese electronics manufacturers. This weakness was highlighted Wednesday by the recent signs of slowing Chinese economy and by the decline in US retail sales and factory orders figures.

This situation could be particularly serious for countries that are more dependent on trade, such as Singapore, Malaysia, Mexico and Japan.

China, the most populous country in the world, is at the center of all these problems. Its rapid development in recent decades has added hundreds of millions of consumers to the global market, while offering a large number of low-cost products.

And since China is responsible for about one-third of global economic growth, any interruption of trade is equivalent to a global event.

Trump designed its tariffs to hurt China and put pressure on its political leaders that they agree to eliminate subsidies granted to state-owned companies, stop demanding the intellectual property of US companies and open their markets to foreign competitors. Until last week, the US president had insisted on the imminence of a trade deal with China. Then, he brutally accused the government of this country of not respecting its commitments and chose to increase the tariffs.

The steep escalation comes at a particularly difficult time for the global economy, endangering what appeared to be a stabilization of the Chinese economy, albeit gradual.

China's import volumes increased in April, according to data badysis from UBS, the global investment bank. According to the International Air Transport Association, air cargo rose in March compared with the previous year worldwide.

But these trends are fragile. Air freight has decreased by almost 4% since its peak in 2017. Outside of China, manufacturing in Asia has slowed for most of the past two years. It is almost certain that a trade war between the United States and China, two countries together accounting for about 40% of world economic output, will worsen the situation.

According to the badysis of Oxford Economics, over the last year, exports from Japan, Taiwan, South Korea, Thailand and Vietnam to China have dropped by 14%, about $ 6.3 billion.

These same countries increased their exports to the United States by a similar percentage. But this country is a less important trading partner, and the increase is less than $ 2 billion.

In Europe, the trade war has become another source of concern in this period of weak growth.

The hope that the United Kingdom's problematic exit from the European Union would hurt trade across the continent has diminished, at least in the immediate future, because London and Brussels have decided to extend their separation procedures the end of October.

Germany, the continent's largest economy, had moderated its fears of weakness, with data indicating an increase in orders and exports from factories. Exports from Germany to China increased by more than 5% in March compared with the previous year.

But much of what Germany sends to the Asian giant equates to the elements of Chinese industrial equipment: auto parts, engines, electrical machinery and other equipment used in manufacturing activities. If Chinese factories slow down in relation to US tariffs, the demand for German products will probably decrease.

In Italy and France, industrial activity has weakened in recent months.

"For Europe, this is happening at a very sensitive time," said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Norway. "Growth is still very weak."

The trade war has already scared the global stock markets, which has led to a fall in stock prices in recent days.

If the fear of investors increases, it is almost certain that the money will go to the last refuge: the US dollar. Most likely, this comes with money from emerging markets, which will aggravate the crises in Argentina and Turkey, while reducing the value of currencies in general, from Brazil to South Africa and to India.

Falling currencies will make imported products more expensive in these countries, forcing the poor to pay more for food, fuel and transportation.

After rising earlier this year, foreign exchange and emerging market equities have fallen sharply in recent weeks.

The key question is how long trade hostilities will last.

Trump's strategy seems to stoke nationalist anger in China, where the Communist Party government relies on these feelings for propaganda purposes. This could harden the will of Chinese leaders to maintain their position, fearing the political consequences of giving in to the attacks of the American leader.

This situation does not seem to favor the expansion of world trade, which has increased by about 4% in 2017, then slowed to 2% last year and may contract this year.

"When trade volume growth becomes negative, it is time to take a closer look at a recession scenario," said Marie Owens Thomsen, chief economist at Indosuez Wealth Management in Geneva. "Things seem more disconcerting and the risks are increasing."