In typical fashion, US President Donald Trump has poured cold water over any hopes of a breakthrough in the long drawn trade war with China even before delegates from both countries could begin their 13th round of tariff talks in Washington. Now the global economic outlook is beginning to look far grimmer than Trump, or anybody for that matter, would have imagined when he fired the first salvo in January 2018. And it’s not like even the US can wriggle well enough to avoid this particular axe, and a pronounced slowdown, any longer.
Up until now the American economy was comfortably cushioned by tailwinds of Trump’s tax cuts. But with that stimulus now tapering off, and tariff pressures mounting – since China has, quite predictably, been reciprocating with counter-tariffs – not to mention the Federal Reserve’s interest rate hike throughout 2018, the world’s biggest economy is facing serious headwinds just as campaigning for next year’s presidential election picks up. That is why the Fed has changed gears and begun lowering the interest rate; and is likely to continue doing so for a few more quarters at least.
Everybody hoped that the two countries would have realised by now that, just as the text book says, trade wars are zero sum games with often unmanageable spillovers. And a long-overdue de-escalation, however slow, was in order. Instead there’s much to suggest that his ugly trade and tariff war might just mutate into a full blown currency war; something we saw hints of just a month or so ago when the Chinese let the yuan slide to levels not seen in six or seven years.
Washington accused Beijing of manipulating its currency straight away. But, quite to the contrary, the Chinese have actually been preventing their currency from diving too steeply for more than half a decade; precisely so the American government does not official dub it a manipulator. But with the Trump administration squeezing the life out of the Chinese economy – already growing at the slowest rate in about 30 years – soon enough the Middle Kingdom will have no choice but to weaken the yuan to breathe some sort of life into its exports. And then you can safely bet your money on an across-the-board round of competitive devaluations, with governments everywhere debasing their currencies just to keep their exports from collapsing. There’s little chance of such developments helping Trump too much in his re-election bid.
And, as expected, when the world’s two biggest economies are in a senseless fight most other countries, especially small ones more dependent on global financial flows, tend to suffer for no fault of their own. Hence shrinking trade and slowing economies in much of Europe and Asia. Rather than take steps to end his trade war, for his own political future if not for the rest of the world, Donald Trump seems to want to play on a little longer.
Source: https://dailytimes.com.pk/480781/trump-wants-to-play-more-trade-war/
