The US-China trade war increases risks for the global economy

The trade war that erupted on Friday between the United States and China involves a major escalation risk that could weaken investment, depress spending, disrupt financial markets and slow down the global economy.

Trump administration imposed a 25 percent duty on 34 billion US dollars ($ 49.7 billion) of imports from China, and Beijing promptly retaliated with rights to an equal amount of US products. Because of this first round of hostilities, US companies and ultimately consumers could end up paying more for products made in China such as construction equipment and others. machinery. And US suppliers of soy, pork and whiskey could lose their competitive edge in China.

These initial tariffs are unlikely to inflict serious damage on the two largest economies in the world. Gregory Daco, head of the US economy at Oxford Economics, calculated that growth in both countries would not be more than 0.2% until 2020.

But the conflict could soon escalate. President Donald Trump, who prides himself on winning a trade war, says he is willing to impose tariffs on Chinese imports up to $ 550 billion – a figure that exceeds $ 506 billion shipped from China to the United States.

The escalation of tariffs is expected to slow down business investment as companies wait to see if the administration can reach a truce with Beijing. Some employers will likely put hiring on hold until the picture becomes clearer. The damage could risk canceling some of the economic benefits of the tax cuts last year.

"Trade disruption is the biggest threat to global growth," said Dec Mullarkey, chief investment officer, Sun Life Financial. "The direct effects will be magnified when business confidence declines and investment decisions are delayed. Markets are still hoping the key players will return to the negotiating table."

The origin of the conflict is the assertion of Trump's predatory tactics administration in an attempt to supplant the technological supremacy of America. These tactics include cyber-theft as well as forcing companies to yield technology in exchange for access to the Chinese market. Trump's tariffs are supposed to prompt Beijing to change its behavior

The conflict with China is the most important trade dispute that the administration has caused. But it's not the only one

Trump is also fighting with the European Union for his threat to tax auto imports and with Canada and Mexico for his willingness to rewrite the pact North American commercial. And he has submitted most of America's trading partners to tariffs on steel and aluminum.

Many people caught in the initial line of fire – American farmers absorbing tariffs on their exports to China, for example – are scared. Soybean prices fell 13 percent last month, fearing that Chinese tariffs will prevent US farmers in China, which buys about 60 percent of their soybean exports.

"For soybean producers like me direct financial blow," said Brent Bible, a soybean and corn producer in Romney, Indiana. "These rates could mean the difference between a profit and a loss for a whole year of field work, and that's only in the short term."

Christine LoCascio, a director of the Distilled Spirits Council, said she fears that Chinese tariffs on American whiskey "put a damper on US success" of increased exports of American spirits.

Even before the first shots, the prospect of a trade war worried investors. The Dow Jones Industrial Average has lost hundreds of points since June 11. But the risks are now taken into account in the market, and the Dow Jones rose nearly 100 points Friday to 24,456.48.

against the dollar over the past month, giving Chinese companies an edge over their US competitors. The decline could reflect a deliberate devaluation by Beijing to signal its "dissatisfaction with the state of trade negotiations," according to a report by the Institute of International Finance, a banking business group.

The Trump administration sought to limit the impact of tariffs on US households by targeting Chinese industrial products, not consumer products, for the first set of tariffs

But this step increases the costs for US companies that use machines or components made in China. And this could force them to pass on these higher costs to their business customers and eventually to consumers.

If you like Chick-fil-A sandwiches, for example, you can feel the effects. Charlie Souhrada of the North American Food Equipment Manufacturers said the rates could increase the cost of a kind of pressure cooker uses Chick-fil-A.

The administration placed "these taxes on the import squarely on the shoulders of manufacturers and, by extension Consumers," said Souhrada.

One of the ways in which tariffs will squeeze farmers, landscapers and construction companies is by increasing the price of Bobcat-made shovels and loaders, which use parts imported from China. US suppliers rarely manufacture these attachments, so the company has to import them.

Jason Mayberry, deputy general counsel for Bobcat, said in a brief submitted to the US Trade Representative's office that the company should raise its rates. Bobcat's raw material costs have also increased due to steel and aluminum pricing in the administration.

The Federal Reserve learns that the trade war forces companies to rethink their investment plans. In the minutes of its June meeting, the Fed noted that some companies had delayed or reduced their plans to purchase or upgrade equipment.

And if Trump extended tariffs to 550 billion US dollars in Chinese imports, consumers could not avoid being caught in the crossfire: taxes hit products like televisions and cell phones

That's what happened to imported washing machines, which were hit by separate Trump tariffs in January. During the past year, their price has jumped by more than 8%.

US trade groups urge both countries to resume talks

"Tariffs will result in retaliation and perhaps more tariffs". National Association of Manufacturers. "No one wins in a trade war."

– AP