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Trade War Threatens to Rock the Global Economy

Publish On 24, Nov 2020 | Trade War Threatens to Rock the Global Economy

The U.S.-China trade war has escalated to the point where concerns
about possible consequences after the end of this year are practically
palpable in many countries, as evident in the waves of downturns in
stock markets across the world and the weakening currencies of their
trading partners including the Thai baht, against the U.S. dollar.

The trade war officially began when the U.S. President Donald
Trump imposed a 25% tariff on 1,102 product lines worth in total
over USD 50 billion on June 15, 2018, effective on July 6, 2018. The
move prompted swift reprisals from China, who returned the favor
by slapping tariffs on U.S. imports to match the U.S., effective on
the exact same date.

On August 23, the U.S. retaliated with new tariffs worth USD 16
billion, targeting 279 categories of products, including semiconductors,
plastics, chemicals, motorcycles, odometers, and railway construction
equipment. Subsequently, on September 24, the Trump administration
levied tariffs of 10% on the $200bn of Chinese products, with the
tariffs to go up to 25% by the end of 2018 – the most extensive
tariff policy on imports in the U.S. history.

New Frontier of Currency War

In its report on International Economic and Exchange Rate
Policies, the U.S. Ministry of Finance has expressed concerned
on the weakening of the Chinese yuan, which has fallen by over
7% since June. It has also accused Beijing of implementing
murky foreign exchange rate policies and stated that it would
be keeping a close eye on the same policies in India, Japan,
South Korea, Germany, and Switzerland.

If each country intentionally devalues their currency to spur
exports and domestic economic growth, currency war can
break out and further complicate the ongoing trade war.
However, Markus Rodlauer is Deputy Director of the IMF’s
Asia and Pacific Department (APD) believed that the yuan is
fairly valued, in line with economic fundamentals.

Impact on the World
In addition to China, the U.S. has also imposed a 25%
tariff on steel and a 10% tariff on aluminum on imports from the
E.U., Mexico, and Canada. The move will adversely affect the
trading partners of these countries, the U.S. included.
However, the automotive industry appears to the hardest hit,
with Ford Motor and the General Motor lowering their profit
estimates for 2018.

The Economist has also forecast that Asian countries
involved in the production chain of China will also be
hurt, as 30% of the value of its U.S. exports are manufactured
in third countries.

The Kasikorn Research Center has estimated that
Thai exports could lose as much as THB 149.8 billion if
the trade war continues to the end of this year, while the
Ministry of Commerce has acknowledged its impact,
especially on electronics, such as washing machines
and solar cell panels.

As the war continues to rage on with no sign of dying
down anytime soon, the world economy might be tipped
toward recession once more.

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