How Trump's trade war is simmering global trade: QuickTake

How Trump's trade war is simmering global trade: QuickTake

US President Donald Trump went on the warpath in 2018. He triggered a worldwide trade showdown to punish countries – and try to make concessions – he said, with unfair practices such as theft of American technologies, industries cutting subsidies, and dropping cheap products abroad. Its tariffs, which were designed to punish countries that have imposed tariffs on US goods, spurred global trade. As levies began to disrupt supply chains and raise prices for manufacturers and consumers, concerns grew that the trade war slowed economic growth and undermined the World Trade Organization, the international organization that negotiates, monitors and mediates on trade rules.

1. Why did Trump invite this fight?

He routinely points to the large US trade deficit, the difference between imports and exports as a symbol of a declining manufacturing base and the loss of American power. It aims to reduce the gap between goods and services, totaling $ 566 billion in 2017, by urging US companies to import less and export more.

2. What did he do?

In January, he imposed tariffs on solar panels and washing machines made outside the United States. The tariffs act like an import tax. He then imposed tariffs on steel and aluminum from most countries, including the allies Canada, Mexico and the European Union. They retaliated with tariffs on US goods. Trump categorized tariffs on Chinese goods, including furniture and food worth $ 250 billion, and said he was considering adding $ 267 billion worth of goods to the list. All in all, he threatened or imposed tariffs on virtually all products from China, which imposed duties on almost all US goods entering the country. Trump also considered tariffs for cars.

3. Does Trump's strategy work?

It depends on who blinks first and whether US trading partners offer to limit their exports or meet US requirements. Trump's threat to abandon the North American Free Trade Agreement led to a revision of Canada and Mexico, the other two signatories to the treaty. Metal prices had also asked the EU for an agreement, but China seemed less willing to bow. Meanwhile, the US trade deficit worsened in 2018, also because the stronger dollar has made US exports more expensive.

4. What is the economic effect?

That's still going on. In the US, the trade war alarmed corporate leaders who largely support existing trade agreements. In mid-2018, however, US economic growth remained buoyant as economists had partially credited Trump's tax cuts. The International Monetary Fund lowered its forecast for global growth by 0.2 percentage points in 2018 and 2019, partly due to tensions in the trade.

5. How about China?

The trade battle took place at a time when the Chinese economy was already slowing down. In September, it helped bring the country's benchmark to its lowest level since 2014. Should Trump apply all threatened tariffs, the rainfall would hurt China's economy by 1.5 percentage points, Bloomberg Economics estimates. Tensions have also affected other Asian financial markets, including markets in India and Indonesia.

6. Who counts to the winners?

The metal tariffs have helped producers with American plants such as ArcelorMittal, US Steel and Nucor. They charge higher prices and some have reopened closed locations. But some companies that originally benefited from customs have become victims. Whirlpool Corp. for example, 200 jobs were added in the US after Trump had cleared the washing machines, but this was burdened by steel taxes. Due to the passing on of higher raw material costs the prices of Whirlpool and other washing machine manufacturers increased on average by 15 per cent, which burdened the sales. One study predicted that steel and aluminum tariffs could kill 16 jobs for every job won by metal manufacturers.

7. And some of the losers?

Caterpillar, General Motors, Harley-Davidson and other US manufacturers say tariffs have increased costs and reduced profits. Harley-Davidson Inc. said it was relocating some manufacturing facilities abroad to avoid retaliation fees. US farmers fell victim to setbacks, causing the government to provide $ 12 billion in bailouts. The Chinese exporters also felt strained, so the government offered tax breaks for hundreds of products in September.

8. Can the WTO not resolve the dispute?

Both the US and China base their tariffs on domestic law. This could limit the ability of world trade to mediate and undermine the rule-based system for world trade.

To contact the reporters on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net; Rich Miller in Washington at rmiller28@bloomberg.net; Austin Weinstein in New York at aweinstein18@bloomberg.net

To contact the editors responsible for this story: Rich Miller (rmiller28@bloomberg.net), Paula Dwyer, Leah Harrison Singer

© 2018 Bloomberg L.P.

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