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What happens when the two largest economies in the world make war?
In the first minute of this Friday, United States began to enforce rights on hundreds of Chinese products million
China charged the United States to have initiated the "biggest trade war of economic history" and Beijing has already taken retaliatory measures.
"The Chinese side, after promising to shoot first, is forced to organize counter-attacks to protect the interests of its people," said the Chinese Ministry of Commerce.
And if the thing keeps climbing, the price may end up paying for everything: it is true that it is not a real war, but nobody knows how it can end
– Eye for an Eye –
For starters, many Chinese products will be subject to 25% duty as of Friday.
% more expensive for US consumers
This includes technology products such as semiconductor chips, badembled in China and needed for our everyday products, such as TVs, computers, cell phones and vehicles.
But according to the Petersen Institute of International Economics, more than 90% of the products that will be affected by US duties are made from intermediate products or equipment goods, which means that they will not be used. That is, they must manufacture other types of products
This means that tariffs could affect other goods, not necessarily marketed exclusively in the United States.
Although the United States really seek to harm framed in the Chinese initiative of "Made in China 2025" (Made in China 2025).
– The Chinese Answer –
] In retaliation, China attacked these sectors:
► The agricultural industry: American farmers, stronghold of President Trump. About 91% of the 545 products taxed by China belong to the agricultural sector.
►The automotive sector: companies such as Tesla and Chrysler manufacture in the United States and the products they send to China will be affected.
► Medical products; coal; oil (but only slightly)
"Our contacts in China told us things like" it gets serious "or" it's scary ", even" I think there's a possibility that things get worse " "," Explains Vinesh Motwani, Research Center on the Silk Road
And while Beijing is extremely good in the game of rhetoric, the reality is even more serious than words.
Motwani has just returned from a trip to the Chinese mainland, as part of his surveys to measure the temperature of entrepreneurs in the country.
It is worrying, he says, that this may translate into "less confidence and more caution" on the part of companies. l & # 39; uncertainty.
This means that plans for expansion can be frozen. And if the Chinese expansion pauses, this will have a direct impact on the rest of Asia.
– Change in business? –
Obviously, it is the US and Chinese economies that are most at risk, but they are not the only ones.
According to Taimur Baig, chief economist of DBS, a trade war at its best can take away 0.25% of the GDP of both economies this year
And the situation could worsen the year next with a growth reduction of about 0.5% or more.
"While China is growing at 6-7% and the United States 2-3% a year, we think that the damage can be more serious for the United States than for China," says Taimur Baig.
But countries like South Korea, Singapore, or Taiwan can also be affected alterations in the supply chain.
China gets a lot of components that end up in its finished products in these countries. As Nick Marro of the Economic Intelligence Unit says, "any change in China's export flow would inevitably affect" those countries.
The situation could also result in a change in manufacturing flows to these countries, or that these countries have benefited and sold to the United States, but this change would take time, and it is difficult to imagine who could match the scale of Chinese demand.
And finally, all consumers would end up paying more for these products.
– Up to what point can the situation get worse? –
This is the question that every entrepreneur with whom I am poses, and the answer is almost always the same: no one knows it.
If history serves as a guide, past trade wars have caused deep economic malaise. In particular, it is believed that the Smoot-Hawley tariffs adopted in 1930 inspired a trade war and led to a mbadive decline in world trade.
As one study indicates, world trade declined by 66% between 1929 and 1934, while US exports and imports to and from Europe also declined. about two-thirds.
Although no one is saying that we are still at this stage, businesses are more concerned than before, mostly because of the uncertainty. 19659038] The "eye for an eye" mentality between Beijing and Washington could lead both sides to not want to leave their hostile positions for fear of losing.
But what many entrepreneurs are waiting for, of course, is that this fury is the beginning of another round of negotiations
The problem is that, if it is not the case, it will worsen and we will all be poorer. And that includes you and me.
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