Worries that Trump is entangling America in a global trade war intensified greatly this week after China imposed retaliation tariffs on the US and stock markets plunged.
The Dow Jones industrial average crashed and then rallied after markets fell in Europe and Asia on concerns of an escalating trade conflict amongst the world’s two leading economies.
When the US announced it planned to impose 25 per cent duties on $50 billion worth of imports from China, China quickly retaliated by listing $50 billion worth of products that it could potentially be hit with its own 25 per cent tariffs.
The actions from both the U.S. and China this week have fuelled fears of a prolonged trade war, something which former Treasury Department official Christine McDaniel points out could be bad news for everyone:
“If these tariff threats escalate and actually materialise then it’s not only going to be a lose-lose for China and the United States. It will be a lose, lose, lose. China, the United States and the world economy,” she said.
Both sides have huge industries which rely heavily on world trade to consider.
China announced plans to impose tariffs on most passenger vehicles. That would have a significant impact on America’s car industry — including major car manufacturers General Motors, Ford Motor Co and electric carmaker Tesla Inc., which depends on China for 17 per cent of its revenue.
China’s position as an assembly hub for electronic devices makes it the biggest consumer of semi-conductors. It also means the US technology sector will not escape unscathed from a potential trade war, especially companies that have Chinese factories. Currently, that includes tech giant Apple and Lenovo, who would face higher supply costs as a result of the tariffs which would impact both the U.S. and China greatly.
There is also the fear that should China resist Trump’s demands for concessions on trade, the U.S. could prohibit the Yuan’s use in invoicing or settlements by U.S. businesses transacting with Chinese partners.
A currency war running alongside a trade war would be especially dangerous, financial markets could be destabilised, and international lending could be disrupted.
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