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Trump’s trade war and global fallout

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THE US President-elect Donald Trump’s announcement of imposition of new high tariffs on Chinese goods is actually pushing the world towards economic zero-sum game. Despite anti-China rhetoric, some prominent US economists termed it as destructive to domestic markets producing many serious issues in terms of qualitative industrialization, disruption in global supply chains, easy and smooth supply of EVs, lithium batteries, green technologies and some food commodities in the days to come. On the other hand, the US economy faces a debt crisis with national debt reaching US$36 trillion due to which its economy feels good, market stability and sustainability is at stake further eroding sectors of public health, banking and financial institutions, insurance companies, SMEs, real estate and last but not the least, education.

Most recent announcement of Trump that, once he takes office in January, he will introduce 25% tariffs on goods entering the US from Canada and Mexico and will also increase existing tariffs on China by 10% due to which global markets flatten. The critical analysis of the impact of tariffs which Trump imposed in his first term of office between 2017 and 2020 reveals most of the economic burden was ultimately borne by US consumers. Mexico, Canada and China have all expressed their concern over Trump’s plans. These countries have already shown their serious concerns about the revival of economic protectionism, isolation and America First spoiling the true spirit of economic globalization and international cooperation.

Morgan Stanley’s latest report shows some kind of politicization of tariffs as US trade tariffs would pose risk to economic growth, however, its own allies India and Japan relatively shielded from US tariff risks thus world is once again grappling with the genie of geopolitics and geo-economics is being compromised and marginalized due to which the Global South comprising developing and under-developed countries would be in the line of fire in the days to come. Since Trump is swiftly approaching his presidency, many world economists are of the view that Chinese exports will reach a historical high this year as customer’s rush to front load orders given Mr Trump’s threat of higher tariffs when he takes office in January 2025.

According to Bloomberg export growth will accelerate to 7% in the final three months from the same period last year. It is an upgrade from the 5% gain seen in October ahead of the US election and would push total exports this year to US$3.548 trillion above the previous record in 2022. Ironically, in the next few months, Chinese exports might benefit from panic-stockpiling by foreign companies. The spectre of a trade war will probably cause China’s policymakers to lean more heavily on pro-consumption stimulus measures next year. The US western justified its imminent tariff hike hoping that Donald Trump imposing massive US tariffs on Chinese imports could drag down global inflation by lowering the price of goods in other countries.

However, Swati Dhingra, an external member of the Bank of England, said Trump imposing a threatened 60% tariff on goods from China sold in the US could lead Chinese exporters to cut their prices elsewhere to ensure they maintained current trade volumes. Ultimately it is feared that imposition of a 60% tariff increase will have repercussions on world prices and mostly on the downward direction. Additionally, the Chinese Ministry of Commerce strongly condemns and firmly opposes the US decision to place sanctions on 29 Chinese firms under the so-called Uyghur Forced Labour Prevention Act (UFLPA). The US Department of Homeland Security (DHS) announced that 29 Chinese companies were being added to the so-called UFLPA Entity List. This move is completely unfounded, and uses “human rights” as a cover for outright bullying and economic coercion.

The spokesperson emphasized that China is firmly opposed to “forced labour” in any form and there is no forced labour in Xinjiang Uygur Autonomous Region. The US, without any credible evidence, uses its domestic laws to impose sanctions simply because Chinese companies source materials from the Xinjiang region or employ Xinjiang workers. This action gravely infringes on the basic rights of Xinjiang residents, damages the legitimate interests of the companies affected, and disrupts the stability of global supply chains. The Chinese commerce ministry urged the US to stop its political manipulation and smear campaign, and end its unjust suppression of Chinese companies.

With these latest sanctions, the total number of entities, including the named subsidiaries, on the UFLPA Entity List totals 107 companies. Moreover, Donald Trump’s friendly disposition toward tariffs is not new. The president-elect raised tariffs considerably on imports from China during his first administration, and on the campaign trail this year he often gloated about the prospect of raising tariffs to reduce America’s trade deficit and to protect US jobs. But using tariffs to threaten other countries into complying with US demands in this case, curbing the flow of illegal immigration and drugs is new, and its effectiveness unknown.

Another forecast from Deutsche Bank warns that these tariffs are likely to push up US inflation. The bank says that the personal consumption expenditure (PCE) measure of inflation is likely to go above 3% next year. It is currently 2.1%. In summary, US debt is now at more than US$36tn, compared to just over US$23tn. It is predicted that if rates go up, it will cost the US government heavily, because they will have to pay more interest on the soaring US national debt. It is feared that Trump’s high tariffs would be disastrous, destructive and damaging for the US domestic markets and automobile manufacturers, health, medical instrument producers, housing industry, big truck manufacturers, big semi rigs operators, real estate, chemical industries, and most importantly, green technologies would feel the heat.

To avoid or mitigate the spillover socio-economic and manufacturing ramifications the Chinese policy makers should adopt international market diversification, formation of BRI Corridors of qualitative industries, Clusters of modernization, digitalization in BRI member countries, and last but not least, reallocation of the Chinese industries in Pakistan, Africa, Central Asia and friendly countries of the EU would be a counterproductive trans-regional policy producing diminishing effects in the days to come. Otherwise, enemy’s friends would be considered the US enemies and consequently Pakistan and its economy would be in jeopardy.

—The writer is President, Pak-China Corridor of Knowledge, Executive Director, CSAIS, regional expert: China, CPEC & BRI.

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