Tag: trade war

By Eddie Spence for Bloomberg

President Donald Trump’s tariffs on Chinese imports are getting a lot of blame for slowing the global economy, but it’s all the uncertainty from his Twitter habit and trade policy more broadly that could be even more harmful.

According to a report by Bloomberg Economics’ Dan Hanson, Jamie Rush and Tom Orlik, uncertainty over trade could lower world gross domestic product by 0.6% in 2021, relative to a scenario with no trade war. That’s double the direct impact of the tariffs themselves and the equivalent of $585 billion off the International Monetary Fund’s estimated world GDP of $97 trillion in 2021.

China would be hit harder by the uncertainty factor, with its GDP lower by 1% compared with a 0.6% chunk taken out of America’s economic output, the analysis showed.

“The tweet is mightier than the tariff,” the Bloomberg economists wrote in their report.

The U.S. president’s social media posts on trade, many of which are about China, sometimes appear several times a day and other times not at all. His contradictory takes on the progress of negotiations with Beijing send a chill through businesses that are making decisions about investing and hiring.

A survey released last week by the Federal Reserve Bank of New York found a growing conviction among businesses that tariffs were hitting their bottom line.

The Fed responded to economic headwinds with a rate cut of 0.25% last month. The Bloomberg Economics report said that while monetary policy can be used to mitigate uncertainty shocks, it cannot prevent the damage entirely. If central banks respond to demand weakness, world GDP will be 0.3% lower in 2021 than it would be in a no-trade-war scenario.

Source: Supermarket & Retailer 

South African consumers face more pain from potential global trade wars and fuel increases, global payments company MasterCard said.

The retail sector has been flailing in recent months, with consumers feeling the strain of VAT increases and three consecutive months of fuel price increases.

Consumer spending accounts for more than 60% of GDP. The economy is still reeling from a weak first quarter in which the sector contributed significantly to the decline.

“It’s brutal. The ongoing fuel price hikes is the number one risk to global growth, but the global trade wars are SA’s biggest macroeconomic concern. Consumers need to watch this closely,” said Mastercard senior vice-president of market insights, Sarah Quinlan.

SA imports most of its petroleum products from abroad at prevailing global prices and exchange rates.

“If consumers spend more on transport, they will have less to spend on any discretionary items,” said Old Mutual Multi-Managers chief investment strategist Dave Mohr.

As tensions rise between major trading partners China and the US, with ripple effects globally, the cost of living is expected to go up significantly.

“We know that we have some challenges in global trade that have been introduced into the global economy. Unfortunately for the South African market, which is heavily export dependent, this will take a serious knock,” Quinlan said.

Added to this, while China was once more open to importing SA goods, the country is now focusing on its domestic market.

“China has made a conscious decision to domestically focus their economic growth, so SA really needs to focus on diversification and stop relying on imports,” said Quinlan.

This was made clear by SA’s current account deficit, which widened in the first quarter as exports fell dramatically.

“The sharp fall in exports shows that SA truly has a structural problem,” said Citibank economist Gina Schoeman.

Business confidence also plummeted to levels last seen nine months ago on the back of a weaker rand and slower retail sales. The risk of a global trade war had alerted certain industries in SA, who had indicated it would affect industry and employment negatively, according to the South African Chamber of Commerce and Industry’s business confidence index.

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