Escalating trade conflicts impact stock prices around the globe, most painfully in China, the U.S, France and Germany as reckless and dangerous policies continue to expand their performance.
No one can realistically predict just how the tariffs being introduced on steel, aluminum and agricultural products will exactly play out.
The rules based trade system has been partially rent asunder by this series of counter tariffs that have changed the terms of trade.
They have made steel and aluminum much more costly in the U.S. than in Europe at the moment
Says Harvard economist and former Secretary of the Treasury Larry Summers, "President Trump’s trade policies will raise the prices Americans pay for what they buy. They will reduce the competitiveness of the U.S. economy.
They will succeed where our traditional adversaries have failed in uniting much of the rest of the world in opposition to us."
For example, by raising the price of steel, the U.S. hurts its economy more than it helps, for steel is key product in many industries across the nation.
One contrary result of our tariffs on others is, for example, the higher cost to American farmers in selling soybeans in major amounts to China and elsewhere in the globe.
The tariffs work like a tax, leading the case of steel and aluminum to higher prices for cars, can, bridges and pipelines, just to name a few end uses.
Naturally, the higher tariffs have drawn a chorus of anger from domestic buyers of metals, as well as Canada, Mexico and the European union.
While there is no precise definition for a trade war, the fear is that actions and counter-actions by the U.S. and China could escalate to a point where they hamper trade and investment and hurt both economies.
It has the potential to derail market confidence and delay major investment decisions, maintains Charles Schwab & Co., a major financial services concern.
All told, the dispute would impact $500 billion in Chinese exports to the U.S., compared to the $130 billion U.S. exports to China.
Especially important to the U.S. is the ability to export a large portion of the U.S. soybean crop to China.
China is threatening to triple duties on the 61% of all soybean crop exports and 31% of our total production that is now purchased by China.
There are many Midwestern farmers whose livelihood depends on this trade.
As well, the nation’s pork producers learned on June 5 that Mexico, a huge importer of pork, had placed a 20% tariff on many pork products.
Most of the general population is unaware of these battles in the trading pits. Mexico is also targeting U.S. cheese exports, as well as apple exports from the northwest.
So, the trail of harm goes far and wide as America acts and China, Europe, Mexico, Canada retaliate. Keeping score is difficult from day to day.
Clearly, it would be better for the U.S. to export more to China and import less from there.
It is the process of fighting this out on the global stage that seems full of risks to interrelations among nations and the economic ramifications of the political action taken.
The battle grounds are the international markets in steel and aluminum, motorcycles, soybeans, pork, cheese and a whole retinue of other products that are traded between and among nations.
The market has responded badly to the threat of a trade war as the Dow Jones industrial average fell for eight straight sessions, giving back all the gains made in 2018 so far.
Chinese retaliation against the U.S. will trigger a tariff of 10% on $400 billion of Chinese imports, the White House has promised. Stay tuned for the next chapters of the pending trade war which has bad implications for the stock market.
