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Given the full-blown global trade war we feared, this actually wasn’t the worst possible outcome: In the first two days of Donald Trump’s presidency, he threatened tariffs on just three of America’s biggest trading partners by the end of next week. went Unless you’re from Mexico, Canada, or China, you have the luxury of waiting until April 1st to start getting really worried, because that’s when the various Trump trade and investment reports are due.
What do we read at this time and in what order? Nothing, obviously. Nobody knows anything. Palace politics explain that business-friendly advisers around Trump have stopped him from immediately imposing tariffs across the board, but then a tax of between 10-25 percent on a third of U.S. imports isn’t exactly what the U.S. economy is doing. requirements of.
Broad-based tariffs remain a clear and present threat, and tariffs on goods — particularly from China — could have knock-on effects globally. Given weak Chinese domestic demand, a trade war could conceivably trigger China Shock 2.0, in which cheap exports of high-tech Chinese goods undercut manufacturers everywhere. Chinese exports have been diverted from the U.S. by the tariffs, the argument being that the global economy would suffocate developed and emerging market economies alike. And if others begin to react with protectionist measures of their own, could trade wars be Trump’s most successful output?
The experience of Trump’s first term suggests that these concerns are serious but not necessarily catastrophic. In some respects, the US market is less important than it looks. In others, trade will find a way to adapt. It is the risk of global recession, not supply chain dislocation, that is the real risk.
European policymakers are clearly wary of Chinese imports, and electric vehicles (EVs) in particular. But the experience of Trump’s first term should be somewhat reassuring when it comes to diverting Chinese goods from the US market. Simon Avnet and Fernando Martin of the Global Trade Alert Project Calculating that US tariffs on imports from China resulted in only $2.8bn of goods being transferred to the EU between 2018 and 2019 – compared to a total increase of $46bn in Chinese goods exports to the EU between 2017 and 2019 There is very little.
Avnet and Martin find that instead of diverting sales elsewhere, exporters hit by tariffs are often forced to “trade off,” with economies of scale making them less efficient and therefore less efficient in other markets. I am non-competitive. To be clear: Redemption is not a good thing. This reduces efficiency and consumer choice. But it also reduces the likelihood of major political conflict over trade.
In the specific case of EVs, the possibility of a large increase in Chinese imports is real, with the EU already imposing anti-subsidy duties to regulate the flow. But America is not an important consideration here. Even before former President Joe Biden imposed 100 percent tariffs on them, there were hardly any imports of Chinese EVs in the US market. Take-up in the U.S. has always been weak, and by promising to remove Biden’s tax credits for EVs, Trump would essentially remove U.S.-based production and consumption from the global market. (Elon Musk, founder of Tesla, OK with that: Credit removal stabilizes Tesla’s position in the US.)
Of course there are. Key concerns Regarding Chinese goods, other middle-income countries and governments have erected anti-dumping walls against basic goods such as steel. But there is a reluctance to pursue protectionism on a large scale, particularly among Asian governments. Countries like Malaysia have become highly adept at positioning themselves in global supply chains and managing relationships with both the US and China.
“Like other emerging markets we have imposed some anti-dumping duties on imports from China, but generally only on industrial inputs such as steel and polymers,” Tengku Zafarul Aziz, Malaysia’s trade minister, told me. “Even if there is a US-China trade dispute, we don’t expect widespread protectionism.”
For both developed and middle-income countries, the prospect of keeping Chinese goods out of the U.S. is both an opportunity and a threat. Consultancy Oxford Economics calculates that the net impact of the US-China trade conflict on other regions’ exports will be almost flat – fewer exports to China as falling demand is offset by higher sales of Chinese goods in the US market. . Europe – which competes with China to sell machinery to the US – and Asian economies in particular will benefit.
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During Trump’s first term, bilateral US-China trade declined sharply, but global trade as a whole held up until the shock of Covid-19. Chinese goods often find their way to the U.S., adding an extra step in the value chain to “connector” countries like Vietnam. Trump wants to curb such moves, but global supply chains can often innovate faster than policymakers.
The biggest threat to the global economy and trading system from a trade war is not export diversion. Supply chains are flexible enough to avoid too much jockeying for position. It’s a sharp weakness in aggregate demand, perhaps from Trump’s efforts to close the overall U.S. trade deficit through tariffs to crush consumer spending, or from declining sales of Chinese exports to the country’s struggling domestic economy. The problems are increasing. Achieving this would require a truly dramatic increase in trade tensions. We are about to find out how reckless Trump is and whether he wants to risk it.
