The Potential Costs of a Trade War
There’s no question that the brewing trade war has introduced a new wave of volatility to the global stock markets. But the fluctuations thus far may just be the beginning. J.P. Morgan’s John Normand told CNBC that a worst-case scenario could see global growth reduced by at least 1.4 percent over the next two years.
In a more immediate and realistic possibility, Normand said that if countries targeted by U.S. tariffs retaliate equally, we could see a 0.4 percent economic contraction. Canada and the European Union have already put some tariffs in place on products such as whiskey, peanut butter, boats and orange juice. Mexico and China are poised to implement tariffs of their own at the end of this week when Trump’s next wave comes into effect. Soybeans and pork are among the targets of these retaliatory tariffs.
On the other hand, President Trump’s efforts could wind up boosting the US. Economy. The country’s trade deficit hit a seven-month low in April, the Commerce Department reported, and the trade gap fell 2.1 percent to $46.2 billion, the smallest since September 2016.
Interestingly, while many investors are focused solely on the countries that are planning for the trade war, research published by Reuters shows that many other countries stand to suffer as well. Among those listed in the study are Luxembourg, Taiwan, Slovak Republic, Hungary, Czech Republic and Korea as well as Singapore, Malaysia and Iceland.
Hungary, for example, has the United States as its second-largest trading partner, and it relies upon its automobile manufacturing as a substantial part of its national economy. Tariffs in the automobile industry between the U.S. and the EU could have a direct impact on Hungary’s production and its bottom line.
With less than 24 hours left until President Trump’s tariff deadline, there’s no question that there’s a lot on the line. And everyone may have a lot to lose.