US Politics: What will Trump's trade war mean for the rest of the world?

Donald Trump
President Trump threatens to cause a trade war but what will it mean?
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As President Trump seems almost hellbent on triggering a trade war, what will it mean for the rest of the world? The Tradefair team brings you the latest from US politics...

"Trade policy is a large and growing concern affecting CEO decision-making and the economy as a whole."

- Joshua Bolten, CEO of the Business Roundtable.

It's been a busy few weeks for international trade, as Donald Trump seems intent on sparking diplomatic conflict with the rest of the world.

Just recently the US President has waxed lyrical about his plans to enforce significant tariffs on Chinese imports. This has, of course, triggered vows of retaliation from Beijing's officials including President Xi Jinping.

As has become the norm during his period in the Oval Office, Trump has fluctuated and double backed on his position enough times that even his closest advisers must be confused about what his genuine intentions are.

When he's not tackling China - arguably the most important economy in the world - the Commander in Chief has been squaring up to the US's own allies. First in line was the automotive industry, when Trump vowed to tax any imported vehicles, but metalworking was soon to follow as he revoked promises to protect America's allies from his controversial steel and aluminium tariffs.

Trump against the world?

Whether the President expected such a reaction or not, the rest of the world has been quick to promise retaliation if the US proceeds with its threats. The European Union, Mexico and Canada have all made their intentions clear if Trump enforces harsher import charges that affect them.

On top of this, his relations with North Korea - which seemed to be reaching record levels of positivity - have now been left on the pyre as the President's landmark meeting with Kim Jong-un was abruptly cancelled. It came after remarks from Trump's Security Adviser John Bolton claimed that the US would look to apply the "Libya model" to North Korea.

These comments led to a backlash from Pyongyang and Trump eventually cancelled the meeting, which was due to take place next week.

To Trump's supporters, this all seems inconsequential as he appears to be living his campaign promise of 'Making America Great Again'. But is that what will happen if Trump takes on world trade?

A trade war and the markets

Since his inauguration at the start of 2017, the stock market has been volatile to say the least. Dramatic gains in equity have been met by record-low and record-high movement.

Investors could be forgiven for being a little cautious after the results of the 2016 election came; few ever expected Apprentice star Donald Trump to be taking a chair in the Oval Office. But this hesitation - or shock - soon changed into positivity, thanks to his promises to invest in American jobs and businesses.

His pro-growth policies and the stock market's undeniably positive - at times - performance has bolstered investors enough to allow them to look past the political uncertainty and posturing from Washington.

Most economists have maintained their forecasts of a strong growth outlook in 2018, estimating only a minimal impact arising from the trade troubles. However, what is at the heart of any investor concern is that Trump could just be warming up.

Speaking to Bloomberg, Torsten Slok, Chief International Economist at Deutsche Bank AG, said: "The impact of tariffs on $50 billion here and there, on its own, is relatively limited. The real danger continues to be the uncertainty about what's next."

Any rapid movement in core inflation could catch the attention of the Federal Reserve, which undoubtedly increases the risk of stricter policy setting. There could also be a backlash if businesses start to react negatively to Trump's outlook.

American businesses look set to be the losers

This could be a legitimate concern as the Business Roundtable reduced its CEO economic outlook index from its record high. Featuring some of America's most powerful business heads and chaired by JPMorgan Chase CEO Jamie Dimon, the group has power and will be a greater reflection of market attitudes for some traders.

Citing "increased uncertainty" as the core reason for its decision, the Business Roundtable reported that nearly two-thirds of CEOs (63%) saw Trump's trade war as a "serious" risk to American exports.

"Trade policy is a large and growing concern affecting CEO decision-making and the economy as a whole," Joshua Bolten, CEO of the Business Roundtable and a former Chief of Staff to President George W. Bush, told reporters during a conference call, CNN reports.

The research also suggests that businesses are being more conservative over hiring, with recruitment plans decreasing by 13% over the next six months.

Bloomberg Economics has estimated that, if the US increases import costs by 10% and the rest of the world replicates it, a trade war could cost the global economy around $470 billion by 2020.

This could broaden if Trump's trade war causes panic among traders, forcing them to sell and triggering a response from the Federal Reserve.

Investors have, up to now, been able to ignore the President's more outlandish actions and focus on the stock market growth, but if it continues to impact American businesses few will be able to put that to one side.

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