Trade turbulence can land world in trouble

At a time when the global market is battling uncertainty, US President Donald Trump’s Twitter message that he will raise tariffs on $200 billion of Chinese imports to 25 per cent from 10 per cent beginning Friday has ignited fresh trade war fears and fuelled more anxiety among investors.

The continuation of the tariff war is the last thing that the world is ready for at this point of time and it is unfortunate that has been no ceasefire yet on this front.

Billionaire Warren Buffett is correct when he says that a trade war between the United States and China would be bad for the whole world.

Surprisingly, just on Friday, Trump had cited progress in trade talks and praised his relationship with Chinese President Xi Jinping.

The effect of the tweet was instant with equities in Asia, Europe and the US turning a sea of red as Trump’s remarks rekindled fears of a trade war with potentially devastating consequences for world growth.

On Wall Street, the Dow Jones index lost over 400 points at the New York opening bell, while Euro zone markets were down by more than 1.5 per cent at that time, having earlier plunged more than two per cent.

Asian exchanges saw some of the worst falls, with Shanghai plunging more than five per cent, and the Chinese yuan also taking a battering.

Boeing Co, the single largest US exporter to China, fell 2.5%, while chipmakers, which get a good portion of their revenue from China, also tumbled.

In a highly connected world, moving further away from an open, fair and rules-based trade system cannot be termed sensible.

Fortunately, there’s still some hope.

Despite Trump’s tweetstorm, Chinese foreign ministry spokesman Geng Shuang has stated that a Chinese team is currently preparing to go to the US for negotiations, though he did not say when or whether top negotiator Liu He would lead the delegation.

The two sides have imposed tariffs on $360 billion in two-way trade since last year. But Trump and Xi Jinping agreed a truce in December, fuelling a surge in global stocks for the past four months.

Just last month, the International Monetary Fund (IMF) slashed the global economic growth forecasts for 2019 and warned that growth could slow further due to trade tensions and a potentially disorderly British exit from the European Union.

IMF chief economist Gita Gopinath had cited the escalation of US–China trade tensions, needed credit tightening in China, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, and financial tightening alongside the normalisation of monetary policy in the larger advanced economies as reasons that have contributed to a significantly weakened global expansion, especially in the second half of 2018.

This is definitely a delicate moment for the global economy as in its third downgrade since October, the IMF stated that the global economy would likely grow 3.3 per cent this year, the slowest expansion since 2016.

More than two-thirds of the expected slowdown in 2019 owes to trouble in rich nations.

Protectionist and unilateral approaches on trade are not the best way forward and only tend to fuel uncertainty and fear among investors.

The two world powers should talk and sort it all out before the trade turbulence steers the global market out of control and land the world in trouble.