The escalation of the commercial war between the United States and China has reached a critical point, threatening to seriously disrupt world trade.
The US-China commercial war increases the risk of recession globally. Photo shutterstock
Mutual rates of over 100% determine that trade between the two economic giants should be prohibitively expensive. The risk of recession, for both the US and the world economy, has increased significantly, say Coface analysts.
An unprecedented commercial war
According to them, the commercial war between the United States and China has reached unprecedented levels. “After President Donald Trump announced a large-scale customs tariffs on April 2, China responded with similar measures. Within a week, both countries have previously imposed 125% on imports. Among the affected products are products made in China, such as clothing,”, I say the analysts.
Rates, in the center of Donald Trump's politics
In fact, for Donald Trump the short -term cost of tariffs is very low compared to long -term benefits. “He sees them as a means of financing the tax reductions, reducing the US commercial deficit and attracting foreign capital to relocate manufacturing production. Breaking trade relationships with an surplus economy like China is perfectly enrolled in this logic”, The Coface analysis shows, pointing out that the risk of a trade in the US and the rest of the world is not a concern for Donald Trump that world trade exists only for the benefit of the US. In addition, it is unlikely that its administration slows its commercial decisions and not (yet) sufficient signs that the Congress is prepared to regain its authority.
The United States is facing the risk of recession
Despite the progress made in decoupling, the trade between the United States and China remains a central pillar of the world economy, analysts shows. A collapse of imports caused by rates would lead to a dramatic increase in the prices of manufactured products or cause certain imported products to become completely unprofitable, causing their disappearance from the American market, they argue. The interruption of the supply chains could affect the key sectors such as the car, chemical and electronic. Inflation could reach 4% by the end of the year, and unemployment could climb to 5-6%, throwing the US economy.
The most pessimistic scenario
A more serious scenario would be a loss of confidence in the US governance, which could trigger a capital support and a crisis of payment balance, say the analysts arguing that the last indicators go in this direction and make this scenario more and more likely. Since April 2, the US dollar has dropped from 0.93 to 0.88 compared to euros, and the returns of the treasury titles have increased by 50 basic points. Since the beginning of the year, the S&P 500 index has lost 7.6% of its value. All these are signs of a possible output of capital from the country.
Supporting the internal market as a response of China to the tariff uncertainties
For China, analysts say, the tariff shock could be partially offset by internal stimulation measures. Internal sales represent another 81% of the turnover of industrial enterprises, while direct exports to the United States represents only 2.7%. Therefore, the internal market remains an essential pillar, and the Chinese government (at the next Politburo meeting in the end of April) could intensify the subsidies and support measures for the affected SMEs and exporters. However, persistent external uncertainties could weaken the impact of these measures, because companies and consumers remain prudent in terms of investments and loans, even at lower costs.
A necessary review of trade policy for business partners
The escalation of the commercial war between the United States and China could force the partners of both savings to review their commercial strategies and choose between protecting their national industries or aligning with US policy to benefit from lower rates, Cofaces analki shows.
“The latter option would inevitably lead to a reduction in redirect activities (through ASEAN, for example) meant to circumvent the rates. To counteract this situation, Beijing could try to improve their relations with export oriented savings that are more inclined to defend multilateralism (Japan, ASIA). Plausible given the uncertainties related to US tariff policy, China should first calm the fears of its commercial partners on the alleged dumping, possibly by imposing export quotas or minimal prices ”is shown in the analysis.
