- Last March, Donald Trump decided to drag age-old protectionism out of the past, imposing tariffs on US imports. Retaliation from Chi-na – the main target – followed; a solution may be on its way, yet, fears of a trade war resurfaced. A closer look point to mere trade skirmishes. Electronic, Electric, Machinery and Equipment and Auto-motive are the most at-risk industries according to our protectionism tracker.
- Beyond the fact that initial threats were generally followed by nego-tiations and exemptions, the magnitude of the exports at risk, and the risks to derail the economic upswing sound like good reasons to take markets anxiety with a pinch of salt. When taken together, all measures would result in +0.5pp increase in China and US total im-port tariffs. This Trade Games scenario (highest likelihood) represents USD30bn per year of combined export losses for the US and China i.e. less than 0.1% of global trade of goods and services. For the US, expected impacts on growth, inflation, trade are negligible (+/-0.1pp max) as well as on business insolvencies (less than +1pp) but twin deficits could increase by -0.6 (trade) and -1.1pp (fiscal).
- Alternative scenarios include a Trade Feud (trigger: +2.5pp in world import tariffs or a 15% tariff for all US imports from China) and a Trade War (+8.5pp of world import tariffs or a 45% tariff on all US imports from China). Both would be (very) disruptive for markets, global trade, business insolvencies, and growth in the US, the EU and China.
- While less tweeted about, other forms of protectionism (Financial, Regulatory, Data, Currency, Environmental, Sanitary, Security, Intel-lectual Property) could be even more disruptive. On the financial risks, capital controls and currency manipulation should be moni-tored should tensions escalate between the US and China.
