Categories Analysis, Markets

An early resolution is the key to winning trade war

After staying resilient to the retaliatory trade sanctions imposed by China over the past several months, it seems the US economy has started feeling the heat at last. The tariffs imposed by President Donald Trump in a phased manner, which attracted criticism from multiple quarters, are already weighing down the Chinese economy.

Introduced as a measure to boost the local manufacturing sector, the new trade policy is feared to be counterproductive to industries like automobile and tourism. Latest economic data shows Trump’s efforts to compensate for the loss in China by stepping up shipments to the rest of the world are not yielding the desired results.

A slowdown in the current economic momentum will not bode well for American businesses in general. In the first half, sectors like retail and hospitality had relied heavily on the booming economy to overcome the market headwinds.

While economic growth accelerated to a multi-year high of 4.2% in the second quarter, economists are cautious in their outlook for the current quarter after the trade deficit widened in August. The retreat from the strong export activity witnessed in the preceding two months, combined with muted investment in the manufacturing sector, has called for a downward revision of the third-quarter growth forecast to 3.2%.

Efforts to compensate for the loss in China by stepping up shipments to the rest of the world are not paying off

With hopes of a near-term resolution diminishing with every passing day, some economists predict the ripple effect of the trade tension on the economy would persist. Others beg to differ, terming the situation a short-lived crisis that would be eclipsed by the underlying strength of the economy.

Earlier this week, Trump at a special press meet undermined the concerns of businesses affected by the tariffs, reaffirming that the new trade policy had little impact on the corporate world and the economy. “And it’s had no impact on our … economy, which I said it wouldn’t,” he said.

Meanwhile, it is feared that the impact of the widening trade gap would be more severe in the upcoming quarters, with the main dampeners being beverages, food and feeds. The last month’s moderate increase in imports is expected to continue in the current quarter and beyond.

BMW cuts 2018 guidance on trade war concerns

While most exporters curtailed shipment of items that attracted Chinese duties, many remain apprehensive about the latest round of revenge tariffs being rolled by Beijing and are holding back their activities. It is pretty evident what the economy witnessed in May and June was not organic export growth, but the result of panicked traders pushing commodities in bulk to escape the first tranche of China taxes.

Worse, the drag on the export of soybean, a key item in Washington’s trade list, is yet to be ascertained since merchants have cleared their stocks in huge quantities well ahead of the earlier Chinese tariffs.

The impact of the conflict on the Chinese economy is more measurable as the Asian giant is a bigger exporter than the US. Though the Chinese authorities have shrugged off the concerns of a slowdown, the reality is otherwise, according to experts.

Trade war could move from Beijing to Tokyo

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