The opinion of Euro am Sonntag: The trade war: She goes to canned food | message

by Frank Engels, guest author in uro sunday

A new stage of escalation was reached in the commercial dispute: Donald Trump received an additional 25% penalty on 1102 items Chinese in mid-May 50 billion US dollars, valid from 6 July. It is particularly aimed at technological products and therefore the future heart of the Chinese economy. Beijing then announced US $ 50 billion worth of retaliation for US goods. For example, US agricultural and automotive products are involved. A few days later, Trump ordered another ten percent check for $ 200 billion worth of Chinese goods. Beijing has renewed its retaliation, and Trump has threatened to report more.

The conflict tilts . While imports of steel and aluminum from China, as well as from other regions such as the European Union (EU), Mexico and Canada, have a more symbolically, things begin to deteriorate. Half of all Chinese imports to the United States, $ 250 billion, must be zillion. China drove
In 2017, $ 505 billion worth of goods were shipped to the United States. In contrast, there were products worth $ 130 billion.

The US trade deficit with the EU is also important, which is a thorn in Trump's foot and why he wants to protect the local economy. Last year, the EU exported more than $ 151 billion worth of goods to the United States that it did not import.

Protectionism night
clearly for the United States themselves

For the EU at present also, it seems that Zllen will not stay on steel and aluminum. Since the failure of the G-7 summit in Canada, it is more likely that the US president will relieve Zlle of car imports. This would then be a much larger volume of transactions than steel. German automakers exported to the United States vehicles worth nearly 30 billion euros in 2017, which corresponds to about a quarter of German exports to the United States. A tax in this respect would hit hard the EU and especially Germany. The EU would probably not like it and would announce new countermeasures.

With his protectionism, Trump does not only harm his "opponents", but also the United States themselves: for example, cars could become a boomerang. German automakers not only ship half a million cars from Germany to the United States, but also produce another 900,000 units there. More than half of these vehicles are exported from the United States to other countries. The more complicated and expensive the production on the other side of the Atlantic, the less useful it is for German manufacturers to manufacture there. Tens of thousands of jobs are at stake in the United States.

In the end, Zlle
on stagflation

China also has more assets in its sleeve. Instead of also increasing customs, the People's Republic could cut access to cheap production. After all, many American companies produce in China. Many well-paying jobs in the United States would be at risk. Or Beijing is banking on a targeted devaluation of the yuan against the US dollar to counteract the effect of the Zlle. In addition, this would have negative repercussions for US exporters in China, as their products would therefore be more expensive for Chinese end customers.

USA vs. China, China vs. USA, USA vs. EU In the end everyone is against everyone. The danger of a trade war has increased in recent weeks. But there are no winners in commercial wars, only losers. There are many examples of this in history. If national companies protected by Zlle pass on their higher costs to customers, without having to worry about sales, prices for consumers increase. It also makes protected firms more inefficient because they are no longer exposed to real competition across national boundaries. In the long run, it's at the expense of the jobs you really wanted to protect. In other words, they all act stagflationist, that is to say that they lead to inflation, weaken the purchasing power and therefore the economic growth. – and in extreme cases around the world.

A trade war would not only hurt the global economy, but also the financial markets. Current events put pressure on stock markets in the United States and Asia in particular. Third-country capital markets such as Taiwan or Korea, which are heavily involved in the wholesale supply chain, are also affected. The signs of slowing capital and currency markets in emerging economies, which are highly dependent on open trade, are therefore particularly high today. While the worsening conflict is weighing on stock markets, the strength of the economy still supports it, especially in the United States. If the situation continues to intensify and a trade war ensues, it would create a clear risk-off scenario for global markets with negative feedback effects on economic indicators.

What Donald Trump
really drives

All these rational arguments are certainly not unknown to Trump. Why is he going on such a wood way? Above all, Trump seems to be looking at November 6, 2018, when the mid-term elections will be held in the United States. It must act, because in polls, Democrats are ahead. And he does it by showing his heart and making his campaign promises. It is likely that the US President will continue to tighten the spiral of climbing until the fall elections. He will respond even harder to counter the reactions. Trump is ready to hurt the global economy to win votes.

Although every tweet can change the situation significantly, the risk of a trade war has increased. This environment is not good for the global economy and the financial markets. The trade war, which nobody wants, would end up hurting everyone, including the United States.

Short CV

Frank Engels
Head of Portfolio Management and Multiple Assets in
Union Investment
Engels has been a member of the Executive Board of the Union Investment Privatfonds since 2014. Since 2017, he has managed the Multi Asset portfolio management. He previously worked at the European Central Bank and the International Monetary Fund.
Union Investment is the fund company
the people and
Raiffeisen banks.

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