What effect will Trump’s trade war with China have on the European Union?
President Trump’s recent rhetoric suggests he is taking a similar approach to the one he used
with North Korea, hoping to bring enough pressure on China to force them to the bargaining
table at the G20 summit at the end of November. He’s said he expects a “great deal”. So far, the
tariffs have not had the full effect that Trump hoped for. Still, there is room for significant
movement on China’s part in the realm of domestic reforms, intellectual property protection, and
competitive neutrality. China will most likely offer concessions and will probably match US
tariffs dollar for dollar. Currently, tariffs on China are at 10 percent, and are scheduled to rise to
25 percent in January unless a deal is struck.
China’s exports to Europe and Southeast Asia are growing fast. Any decrease in exports to the
US market could be partly offset by an increase in exports elsewhere. Foreign direct investment
in China is up by 6%, and America’s is down by 72%. So far Trump is failing to attract more
foreign investment in the U.S., so it’s possible an olive branch will be offered to EU countries in
early 2019. Europe has countered U.S. steel import duties with increased tariffs on Florida
orange juice, Harley Davidson motorcycles, and bourbon.
If we see a global trade war, with everyone raising tariffs unilaterally by say, 10 percentage
points –worldwide GDP growth would slow by around 2.5 per cent over 36 months. With a
global economy pegged at around $90 trillion, that’s a serious hit. We’ll have to wait until
November 30th to find out if President Trump is a true “Master of Trade”, or just a master