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LONDON – Under normal circumstances, worries about the health of the global economy tend to encourage leaders of larger countries to join forces to ensure security.
These are not ordinary times.
The biggest threat to global fortunes has been the intensification of the conflict between the two largest economies in the world, the United States and China. While their leaders openly contemplate inflicting pain, the rest of the world now fears becoming a collateral damage in the context of a growing trade war.
Only a week ago, China and the United States seemed to want to reduce their hostilities, as the global economic outlook improved. Concerns over a global slowdown have given way to ambitious hopes of expansion.
Fears over the weakening of the Chinese economy eased when President Trump announced the signing of a trade agreement that was soon to be signed. This has improved the prospects for Asian economies dependent on global trade such as Japan, South Korea and Taiwan. Europe, a source of perpetual anxiety, was a mark of renewal. Challenging skeptics, the US economy has remained on a roll.
For both businesses and consumers, all this suggested the possibility of paying higher prices for goods soon, a fact that discourages trade.
"A climbing scenario would be terrible," said Gabriel Sterne, head of global macroeconomic research at Oxford Economics in London. "A negative impact on trade flows will be bad for global growth for several years. This is bad news for almost everyone.
If both sides meet their tariff threats, China's annual economic output will be reduced by 0.8%, while annual US growth will be reduced by 0.3%, according to Oxford Economics.
These numbers are modest, but the pain could be felt acutely in industries particularly vulnerable to trade war, such as US agriculture and Chinese electronics manufacturers.
The damage could be particularly severe for the most trade-dependent countries, including Singapore, Malaysia, Mexico and Japan.
China, the most populous country in the world, is at the center of the problems. Its dizzying development over the last few decades has added hundreds of millions of consumers to the global market, while providing a vast array of low-cost products.
Given that China is responsible for about one-third of world economic growth, any disruption in trade is a global event.
Mr. Trump designed his tariffs to hurt China as he was trying to pressure his leaders to stop subsidizing state-owned companies, stop demanding intellectual property from US companies and open their markets to foreign competitors. Until last week, the president had insisted on the imminence of a trade deal with China. Then he brutally accused China of going back on its commitments and opted for an increase in tariffs.
The brutal escalation comes at a particularly difficult time for the global economy, jeopardizing what appeared to be a stabilization or even a gradual slowdown in the Chinese economy.
Cargo volumes imported by China increased in April, according to data analysis conducted by UBS, the global investment bank. Worldwide, air cargo has increased in March compared with the previous year, according to the International Air Transport Association.
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. A trade war between the United States and China – two countries that together account for about 40 percent of global economic output – would almost certainly worsen the situation.
Exports from Japan, Taiwan, South Korea, Thailand and Vietnam to China have dropped about 14% over the past year, or about $ 6.3 billion. , according to an analysis by Oxford Economics.
These same countries increased their exports to the United States by a similar percentage. But the United States is a less important trading partner, and the increase is less than $ 2 billion.
In Europe, trade war is another source of undesirable concern in an era of sluggish progress.
Fears that Britain's indomitable withdrawal from the European Union would harm trade across the continent had subsided – at least for the time being – as London and Brussels decided to extend their divorce proceedings until at the end of October.
Germany, the continent's largest economy, eased fears of weakness, with data pointing to increased orders and factory exports. German exports to China increased by more than 5% in March compared with the previous year.
But much of what Germany sends to China represents only parts of China's industrial base – car parts, engines, electrical machinery and other equipment built into the factories. If Chinese factories slow down their activities against US tariffs, China's appetite for German products is likely to weaken.
In Italy and France, industrial activity has weakened in recent months.
"For Europe, this is happening at a very delicate moment," said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Norway. "Your growth is still very weak."
The trade war has already scared the global stock markets, resulting in a fall in stock prices that reversed slightly on Tuesday.
If the fear of investors worsens, the money will almost certainly go into ultimate refuge, the US dollar. This would most likely be accompanied by money leaving the so-called emerging markets, exacerbating the crises in Argentina and Turkey, while reducing the value of currencies more broadly, from Brazil to South Africa, through 'India.
The falling currencies make imported products more expensive in these countries, forcing the poor to pay more for food, fuel and transportation.
After rising earlier this year, currency and emerging market equities have fallen sharply in recent weeks.
The key question now is how long trade hostilities will last.
It's a question without a clear answer.
Mr Trump seems to be resolving a strong US economy as he declares himself ready to absorb the tensions of a long battle with China. The unemployment rate stands at 3.6%, its lowest level in half a century. The economy has grown at an annual rate of 3.2% during the first three months of the year.
Trump said the United States can win a trade war if it stays the course. However, he also used Twitter to complain that the Federal Reserve is not cutting interest rates, while Chinese leaders are boosting their economy by injecting credit.
This may be his lobbying for lower rates. This can also be read as an admission that Mr. Trump misses – and covets – tools owned by his opponents in Beijing, who enjoy the dominance of the levers of politics.
Mr. Trump's strategy seems to stir nationalist anger in China, where the Communist Party government relies heavily on such sentiments for propaganda purposes. This could harden China's willingness to maintain its position as its leaders fear the consequences of an attack by the US leader.
This is not a recipe for expanded global trade, which has risen by about 4% in 2017, then slowed to 2% last year and could contract this year.
"When trade volume growth becomes negative, we all need to take a closer look at a recession scenario," said Marie Owens Thomsen, chief economist at Indosuez Wealth Management in Geneva. "Things certainly seem more disconcerting. Downside risks increase. "
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