Trade war: America risks killing the global growth it needs

It's been a bad week for the global economy, and the United States just made it even worse.The Trump administr...

Posted: Jun 15, 2018 4:47 PM
Updated: Jun 15, 2018 4:47 PM

It's been a bad week for the global economy, and the United States just made it even worse.

The Trump administration confirmed Friday that it would move forward with tariffs on $50 billion of Chinese exports. Beijing called that a declaration of a trade war, and promised immediate retaliation.

The week began with a chaotic G7 summit where simmering tensions over President Donald Trump's trade policies led to a deep split with America's closest neighbors and allies.

Protectionism is now threatening to slow global trade, and undermine growth and jobs in the United States.

Germany has slashed its economic forecasts, new data show China may already be slowing, emerging markets are coming under pressure and the International Monetary Fund is sounding the alarm.

"The clouds on the horizon ... are getting darker by the day," IMF Managing Director Christine Lagarde said earlier this week.

It wasn't supposed to happen this way: The global economy started the year on a broad upswing that had only strengthened since it began in 2016. With momentum expected to continue into 2019, policymakers were urged to take advantage.

Developments over the past week suggest that economists may have been much too optimistic.

Related: China says 'The US has launched a trade war'

The central bank in Germany, which boasts the largest economy in Europe, slashed its growth forecast for 2018 by half a percentage point on Friday to 2%, and its president warned that uncertainties "are considerably greater than they were."

"The most recent discussion on trade started by the United States has again led to an increased risk of growing protectionism worldwide," the central bank said. "An escalating global trade dispute or widespread rises in import tariffs would have a marked negative impact on Germany."

There are plenty of headwinds elsewhere in Europe: A political crisis in Italy raised doubts about its continued use of the euro, Britain is unable to provide clarity on Brexit and France is wrestling with labor strikes.

The European Central Bank, which said Thursday that it would end its -2.5 trillion ($2.9 trillion) stimulus program, also promised not to hike interest rates until the middle of next year - a reflection of risks to the economy.

In China, new data show that credit and investment growth have taken a major hit. The world's second-largest economy is also suffering from weaker consumption and export growth.

"The surprising resilience of China's growth this year has been a very helpful buffer for the global economy amid various emerging headwinds," wrote analysts at Oxford Economics. "Economic data suggest that the slowdown in China ... is now coming through."

Hopes of a rebound in emerging markets have been dimmed by Federal Reserve rates hikes and a stronger US dollar, which discourages investment in countries such as Brazil and Indonesia. The trend has forced multiple interest rate hikes in Turkey and Argentina, which has also accepted an IMF bailout.

Related: China is killing his business. Tariffs could make or break it

In the face of these headwinds, economists are urging the Trump administration to change course.

The IMF made clear this week that US trade and fiscal policies threaten to further undermine global growth and ultimately drag down the United States.

Lagarde warned that rising federal budget deficits could cause the American economy to overheat, necessitating US interest rate hikes that would put emerging markets under more pressure.

"We are already starting to see symptoms of such negative effects in some emerging market countries, and this might not be the end of it," she warned.

The second piece of advice from the IMF boss has been repeated in national capitals across the globe: Stop with the tariffs.

"Let us not understate the macroeconomic impact [of the trade spat]," Lagarde warned. "It would be serious, not only if the United States took action, but especially if other countries were to retaliate."

Related: IMF's Lagarde warns US about trade, deficits

Trump's former economic adviser Gary Cohn said Friday a trade war could wipe out the benefits of tax cuts.

The first shots are already being fired.

China's Commerce Ministry said it would immediately launch retaliatory tariffs and nullify trade agreements previously negotiated with the United States. If Beijing follows through, Trump has promised another round of tariffs on Chinese goods.

Barclays estimates that a full percentage point could be knocked off global economic growth next year if the United States slaps tariffs on $100 billion in Chinese goods and Beijing responds with dollar for dollar penalties.

"The increased uncertainty and risks [from the trade fight] will weigh on business confidence and investment," wrote analysts at Oxford Economics. "There will be an impact on growth, in China, the United States and elsewhere, at a sensitive time for the global economy."

Terre Haute
Clear
79° wxIcon
Hi: 91° Lo: 71°
Feels Like: 83°
Robinson
Clear
77° wxIcon
Hi: 89° Lo: 69°
Feels Like: 78°
Indianapolis
Broken Clouds
77° wxIcon
Hi: 91° Lo: 73°
Feels Like: 79°
Rockville
Clear
74° wxIcon
Hi: 92° Lo: 71°
Feels Like: 74°
Casey
Few Clouds
82° wxIcon
Hi: 91° Lo: 72°
Feels Like: 86°
Brazil
Clear
79° wxIcon
Hi: 92° Lo: 71°
Feels Like: 83°
Marshall
Clear
79° wxIcon
Hi: 92° Lo: 71°
Feels Like: 83°
Hot and humid!
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Confirmed Cases: 147251

Reported Deaths: 7020
CountyConfirmedDeaths
Cook925324627
Lake9954423
DuPage9311475
Kane7856275
Will6923320
Winnebago309196
McHenry211597
St. Clair2017137
Kankakee130765
Madison103669
Rock Island103329
Kendall99621
Champaign94813
Boone60821
DeKalb57819
Peoria55628
Sangamon45032
Jackson33919
Randolph2887
McLean27713
Stephenson2765
Ogle2714
Clinton24217
Macon23522
LaSalle22617
Union19519
Whiteside19515
Grundy1735
Coles17217
Iroquois1625
Tazewell1508
Warren1430
Knox1400
Cass1367
Williamson1324
Monroe13013
Morgan1303
Adams1221
Jefferson10717
McDonough10215
Lee1012
Henry961
Pulaski790
Vermilion782
Marion690
Macoupin583
Perry571
Douglas540
Unassigned540
Livingston522
Montgomery481
Jasper477
Jo Daviess461
Christian454
Ford381
Jersey351
Woodford352
Bureau302
Franklin290
Menard240
Fayette233
Mercer230
Wabash230
Alexander220
Mason220
Carroll212
Washington210
Johnson200
Piatt200
Hancock191
Moultrie190
Shelby191
Crawford180
Effingham181
Logan180
Bond161
Cumberland160
Fulton160
Clark150
Massac150
Wayne141
Schuyler130
De Witt120
Brown100
Edgar100
Marshall100
Greene90
Saline90
Henderson80
White80
Lawrence70
Hamilton60
Richland40
Stark40
Pike30
Clay20
Edwards20
Gallatin20
Calhoun10
Hardin10
Pope10
Putnam10
Scott10
Out of IL00

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Confirmed Cases: 48201

Reported Deaths: 2693
CountyConfirmedDeaths
Marion11624683
Lake5146242
Elkhart328546
Allen2762129
St. Joseph194366
Cass16389
Hamilton1552101
Hendricks1403100
Johnson1278118
Porter72837
Tippecanoe7158
Madison65864
Clark65144
Bartholomew58544
Howard57557
LaPorte57326
Kosciusko5464
Vanderburgh5226
Marshall4924
Noble47828
Jackson4703
LaGrange4708
Hancock44835
Boone44243
Delaware44250
Shelby42525
Floyd37944
Morgan32931
Grant29426
Monroe29428
Montgomery29420
Clinton2892
Dubois2736
Henry26315
White26310
Decatur25032
Lawrence24425
Dearborn23623
Vigo2348
Warrick21429
Harrison21322
Unassigned193193
Greene18832
Miami1822
Jennings17611
Putnam1698
DeKalb1624
Scott1607
Daviess14317
Wayne1386
Orange13623
Steuben1292
Perry1279
Franklin1248
Jasper1212
Ripley1167
Wabash1122
Carroll1102
Fayette997
Newton9810
Starke933
Whitley925
Huntington812
Gibson802
Randolph794
Jefferson722
Wells721
Fulton701
Jay680
Washington671
Knox640
Pulaski641
Clay604
Rush583
Adams501
Benton480
Owen471
Sullivan441
Brown391
Posey390
Spencer381
Blackford372
Crawford320
Tipton321
Fountain312
Switzerland270
Parke230
Martin220
Ohio170
Vermillion140
Warren141
Union130
Pike110