What China and USA Trade War Might Bring for the Global Markets?
Right after the latest round of tit-for-tat tariff threats between the US and China, investors from around the globe are unsettled due to fear of a trade war. Adding fuel to the fire are the rising interest rates which can thus lead to a severe setback to the markets.
This write-up at MySIPonline is all about the trade war between the world’s two biggest economies and the layer of changes it can trigger for the others around the globe. Let’s get started!
What Has Lead to the Trade Dispute?
President Trump demanded the trade officials in the United States to draw up plans to place £200 billion tariffs on imports from China. This will be applicable on the top of the $50 billion of tariff plan which was already approved and came into effect on July 6, 2018.
The ripple effect of the same has led China to restructure its own tariffs’ list which included plans to place $50 billion on products such as cars and soybeans. However, there is still time to see them coming into effect. Several industry experts are concerned that China’s President Xi Jinping will be eager to respond to Mr. Trump’s latest move for fear of losing face, and this could thus lead to a full-blown trade war. The results of which could have serious consequences for the world’s economy.
What Does it Bring for the World Economy?
On the one hand, where Trump believes that the trade war will be beneficial for all and a controlling action to overcome the current account deficit, many economists are ringing warning bells stating just contrary to what the US president thought, on the other. They are considering it to be bad on the universal grounds, and particularly for the American economy. To be precise, the impact of trade disputes has the potential to lower US economic growth by around 5%.
Furthermore, the world’s economy could take a hit to GDP of over one percent, and there would be a smaller impact on the EU and the UK.
How will India be Impacted?
If these trade disputes get escalated, there is a possibility that a diminished US-China trade engagement could leave some positive effect for countries such as India and Brazil, especially in the short run. Let’s take the example of Soybean for instance. According to the Soybean Processors Association of India, it is one of the critical items on the list; thus a cascading impact is expected in terms of openings for India to enter other markets.
China imports the bulk of its soybean (of around 100 million tons) for domestic consumption annually, where the rest is used in the manufacturing of the soybean oil and meal for export. If the additional tax is levied on China’s export, they could be dented. Thus, India can play a key role in fulfilling this space and could potentially fill in the demands of other countries.
However, if the same is stretched for long, which may further be the reason for a full-fledged war, then it may be bad news for all, and this could lead to low growth and higher inflationary scenario. The rise in inflation is generally favorable for commodities such as Gold, but it could leave a negative impact on the currency and some critical sectors in the equity market.
It is often said that when the two elephants fight, it is the grass that gets trampled upon. The same is the case here. Experts have explicitly said that the trade disputes will benefit no one, including the States. What we can do is take corrective measures to keep a check that our IT exports are not impacted. If we can politically exercise to keep away from this trade disputes, we can be the net beneficiaries. Free-trade creates a win-win for all and benefits almost everyone. It’s time we competitively prepare our industry to face global challenges.
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