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.
By Lameez Omarjee for Fin24
The rand came under “massive pressure” on Tuesday morning, having weakened from R13.63 to R13.90, following news that US President Donald Trump is threatening new tariffs on Chinese imports.
TreasuryONE’s lead dealer Wichard Cilliers said in a snap note that all eyes would now be on the trade spat.
By 09:14 the local currency was trading 1.92% weaker at R13.90 against the US dollar after breaching this level for the first time since November 27 last year when the rand traded at R14.00/$.
“The trade wars are heating up with US president Trump to identify $200bn in Chinese imports for additional tariffs of 10% and on another $200bn after that if Beijing retaliates,” said Cilliers.
Trump reportedly said that the United States will no longer be taken advantage of on trade by China and other countries in the world. “We will continue using all available tools to create a better and fairer trading system for all Americans,” Trump said.
The IMF noted that this could place global growth at risk.
Bloomberg reports the tariffs could be the latest round of punitive measures in an escalating dispute over the large trade imbalance between the two countries. Trump recently ordered tariffs on $50bn (R692.77bn) in Chinese goods in retaliation for intellectual properly theft. The tariffs were quickly matched by China on US exports.
Apart from the trade wars, locally load shedding is also adding to currency weakness, commented NKC Africa Economics.
NKC expects the rand to trade within a range of R13.65/$ to R13.95/$.
RMB economist Mpho Tsebe noted that the rand was among Monday’s worst-performing emerging market currencies, along with the Colombian peso and the Thai baht.
“Given the fragile growth outlook and inflation contained within the 3%-6% target band, the SARB (South African Reserve Bank) is unlikely to increase interest rates to support the currency,” she said.
Peregrine Treasury Solutions’ Bianca Botes said investors are dumping emerging markets for safe haven assets, including US treasury bonds. “South Africa, due to the liquidity that our local market offers, often leads the losing streak, she said.
“Should these tensions elevate and strong data from the US keeps making its way to market, emerging market currencies will remain under pressure and one could very well see the rand target R14/$,” Botes warned.
However, Andre Botha, senior currency dealer at TreasuryONE was optimistic that the rand could recover.
“We still believe that the rand is overdone at these levels and should the tide turn and risk-taking behaviour start taking precedent again the rand could stage a comeback.” He echoed views that the rand’s performance largely depends on global events rather than local factors.
July 2015 retail trade sales expanded 3,3% year-on-year, but growth slowed from an upwardly revised 3,8% in June, and totalled 3% year-to-date.