Can commercial war lead to a new global recession?

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Even if Trump insists on the limited effects of his trade policy with China, the reality is that his decisions may have global consequences

"We have faced unfair business practices for all these years and, in my opinion, the economic consequences are so small that a possible improvement in trade, exports and open markets for the United States makes it worthwhile to continue."

Leer en español: ¿Puede la guerra comercial propiciar una nueva recesión global?

These were the statements of Larry Kudlow, director of the National Economic Council of the United States, before the New York Times. He added that "we must do what needs to be done", sentencing President Donald Trump's decision to continue the so-called trade war with China, which continues without resolution after 11 rounds of negotiations.

Declarations like Kudlow's, or many of those made by Donald Trump in which he assures that who is paying the price of the introduction of tariffs to hundreds of products is mainly China, do not contemplate the repercussions that it has provoked beyond the Chinese and the American States.

A blow to the stock market

In a year in which the most important indicators of the US stock market, such as the Dow and the S & P 500, were performing well and tended to rise after the doubts that the risky behavior of the Federal Reserve of the United States brought to the investment, the commercial war brings new uncertainties for investment with global impact.

This year the stock markets grew because, despite the tensions between the United States and China, the hope of a negotiated agreement between the two largest trading powers in the world kept the investors calm. According to analysts of CNN Business, for example, investors may have suffered from an excess of confidence, because as the negotiations are delayed, the indexes are tending to fall.

Over the past week, the S & P 500 index fell 2.2% and the Industrial Dow fell 2.1%. This follows the decision of Donald Trump to introduce new tariffs of up to $ 200,000 million dollars in Chinese goods.

For investors, the situation looks worse when it is also considered that Trump could open a new front to the commercial war, as he has spoken of introducing tariffs of 20% on cars from Europe.

Read also: Trump: a trade war with India and Turkey is looming

The impact on the consumer

Trump's strategy in this trade war aims to discourage the consumption of Chinese goods that pass through the United States, in order to put pressure on China to dismantle some of its practices considered unfair. Some of these are the intentional devaluation of their currency for commercial purposes and the consistent violations of intellectual property laws.

However, the increase in the import price from China, which has already become essential for many US industries, ends up increasing the prices of many manufactured goods, so the final production of these happens on American soil. This means that it is the consumers who end up paying an important part of the tariffs imposed by Trump.

According to a study by Princeton University, tariffs have cost US consumers around $ 4,400 million dollars per month, resulting in a cost of $ 419 per year per household. According to David Weinstein, an economist at Columbia University, the introduction of these last tariffs, just last week, may bring this figure above $ 800 per year.

The possibility of a recession

The general rise in prices discourages consumption and tariff barriers discourage trade. Without trade, the large American industries, largely responsible for the growth of the world economy, will face difficulties in growing. A scenario in which US industrial development and trade stagnate would correspond to a global recession.

Donald Trump can not allow this to happen. With the sights set on re-election and the good performance of the economy as his main argument to retain the White House, such a situation would endanger his continuity in office.

However, for analysts of the New York Times, the latest introduction of tariffs is not enough to trigger a recession, but if Trump were to expand them to all imports from China, the situation could quickly turn serious.

For Rob Martin, executive director of the UBS bank, the longer the commercial war, the more risk there is that a new crisis will break out. "There is no doubt that these tariffs, if imposed and maintained, increase the possibility of a recession, it makes you more vulnerable."

LatinAmerican Post | Pedro Bernal

Translated from "¿Puede la guerra comercial propiciar una nueva recesión global?"