Tariff war deepens global uncertainty

It is unfortunate that the US-China trade war has entered a new phase at a time when the global growth itself remains shaky.

Indications that negotiations would resume some time this month offer little solace as the escalation in the bruising trade war only adds to the persisting uncertainty in the global market.

A new round of tariffs has taken effect with Beijing’s levy of 5% on US crude marking the first time the fuel has been targeted.

The Trump administration will begin collecting 15% tariffs on more than $125 billion in Chinese imports, including smart speakers, Bluetooth headphones and many types of footwear.

In retaliation, China started to impose additional tariffs on some of the US goods on a $75-billion target list. Beijing has not specified the value of the goods that face higher tariffs from Sunday.

The extra tariffs of 5% and 10% were levied on 1,717 items of a total of 5,078 products originating from the United States. Beijing will start collecting additional tariffs on the rest from Dec.15.

For two years, the Trump administration has sought to pressure China to make sweeping changes to its policies on intellectual property protection, forced transfers of technology to Chinese firms, industrial subsidies and market access.

China has consistently denied Washington’s accusations that it engages in unfair trade practices, vowing to fight back in kind and criticising US measures as protectionist.

China’s vast manufacturing sector shrank in August for the fourth month in a row, although the services sector picked up for the first time in five months.

After Sunday’s tariff hike, 87% of textiles and clothing the United States buys from China and 52% of shoes will be subject to import taxes.

A study by J.P. Morgan found that Trump’s tariffs would cost the average US household $1,000 a year. That study was done before Trump raised the Sept.1 and Dec.15 tariffs to 15% from 10%, as per AP.

Amid the tariff war between the two nations, what is being forgotten is that the recent German GDP contraction, weak Chinese industrial output and an inversion of the US yield curve all seem to strengthen fears of a global slowdown.

The US Treasury yield curve inverted for the first time since 2007. A curve inversion, when short-dated bond yields are higher more than their longer-dated counterparts, is seen as a reliable warning for an impending recession.

The US curve has inverted before each recession in the past 50 years.

The glaring signal of impending trouble came from Germany where the economy shrank by 0.1 per cent in the second quarter as troubles in the auto industry held back the largest member of the 19-country Euro currency union.

Uncertainty over the terms of Britain’s planned exit from the European Union has also weighed on confidence more generally.

Singapore has slashed its full-year economic growth forecast.

More and more businesses are worried globally about the impact of increasing protectionism on exports and production.

Beijing wants the United States to “behave like a responsible global power and stop acting as a ‘school bully’,” while Trump has stated, “This is about American Freedom. Redirect the supply chain. There is no reason to buy everything from China!”

Such war of words and tariffs will not help the two nations, but only create more problems for them and the rest of the world. In a knitted world, coordinated actions suit best and protectionism cannot be an answer.