Tensions rise with countless tariffs – Enterprise Information – The Star On-line

GLOBAL cooperation, crucial in times of weakening growth, has taken a step back with the threat of US$11bil worth of US retaliatory tariffs on European goods.

With possible US tariffs on European cars and auto parts already stoking a lot of tension; this potential salvo from the US, aimed against European Union (EU) subsidies on Airbus, makes it worse.

These tariff threats on the EU are delivered just as the US is said to be finalising a trade deal with China, which has purportedly agreed on many sticking points that it had previously not budged on.

There is no respite for the global economy. Europe’s economy is weakening even as China’s is said to be showing fragile signs of recovery.

President Donald Trump had launched an aggressive tariff campaign against China, which had a US$323.32bil trade surplus in 2018 with the US.

While China has a strong pipeline of stimulus measures to counter the slowdown, the European Central Bank is said to have “little left in the tank.”

Europe, with among its largest economies – Germany, France and Italy – in trouble, is increasingly seen as the biggest threat to global growth.

We do not need a trade war to add to the risks; the EU is already threatening to retaliate against US subsidies to Boeing.

With Boeing’s 737 Max planes being grounded worldwide, this places more pressure on the US and further complicates the situation.

The amount of EU products to be tariffed by the US is 1/30th of that involved in the US-China trade war, but European leaders warn of a further dent to confidence that will, in turn, snowball into further slowing of growth.

Possible auto tariffs will not only hit the EU but countries from South Korea to Eastern Europe, that export and assemble cars bound for the US as well as supply parts to car companies in the US.

The International Monetary Fund (IMF) is concerned that the damage wreaked by potential auto tariffs can be far more costly than that caused by the US-China trade war.

At this “delicate” time of economic slowdown where many nations are grappling with high debts, IMF managing director Christine Lagarde has cautioned against “self-inflicted wounds” that include tariffs and other barriers.

This flare-up in tariff issues does not just involve China and Europe, but also Japan, India and several other countries.

Besides tariff tensions, other factors like the economic outlook of the US, the growth of the Chinese economy, and global markets which remain fragile and volatile, would also impact global growth, said Anthony Dass, head of AmBank Research.

The slowing global economy is susceptible to multi-faceted risks that include the direction of monetary policy, trade tensions, debt, policy risk as in Brexit and geopolitical risks.

“Any of these risks can cause a sharper-than-expected slowdown in global growth, a negative turn in sentiment that would undermine confidence and wide swings in capital flows,’’ said Lee Heng Guie, executive director at Socio Economic Research Centre.

China’s exports in March grew 14.2% compared with a drop of 20.8% in February, amidst suggestions that export subsidies had helped in the rebound.

But any strong rebound in Chinese exports is not expected, in view of weak global growth while a contraction in imports is raising concerns of slower consumer demand in China.

The US economy is viewed to be “in a good place,” the main reason could be due to the rebound in stock prices, said former Federal Reserve chairman Alan Greenspan.

This tends to spur growth; a rise of 10% in the S&P 500 contributes to a 1% increase in real gross domestic product. In the long run, the US economy will be impacted as “the rest of the world is sinking.”

US consumer sentiment has dipped, with The University of Michigan’s preliminary survey sliding to 96.9 in April against 98.4 in March.

The index of consumer expectations for the future fell to the lowest in more than a year, to 85.8 from 88.8 in March.

This constant imposition of tariffs is reminiscent of the Smoot-Hawley Tariff Act of 1930, which increased import tariffs by 40%, causing retaliation and a drastic drop in international trade.

The raising of tariffs to protect US businesses and farmers caused additional strain to the already depressed global climate of the Great Depression.

“When difficulties arise, it will be every country for itself. Similar to the Smoot-Hawley Act, after a spell of poor economic performance, the US is tempted to think it can steal a march on its trade partners by imposing tariffs on them,’’ said Pong Teng Siew, head of research at Inter-Pacific Securities.

Columnist Yap Leng Kuen notes that some may be “tariff happy,” but they should “do no harm.”

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