We all like to save money. No one enjoys overspending, or spending more than they need to. And if you do, well somewhere down the track you hope that’ll somehow be paid back to you, right into your pockets.
So at the beginning of the year, US President Donald Trump felt that the US had been hard done by. Spending money by exporting and importing products, but not getting enough in return.
So he came up with a plan. There would be a trade tariff placed on all imported aluminium and steel. This would mean American companies would receive more business as there is no tariffs placed on their products.
Of course, the rest of the world were incensed. But Trump didn’t back down.
It didn’t exactly work in his favour. China decided to implement their tariffs on the US. And from there, all we’ve heard about is a back and fro from both countries threatening and placing tariffs on more and more products.
So it’s been roughly six months from when Trump first announced his tariffs. And where does that leave global trade?
Well…it’s not great.
The trade war threats are now the talk of the EU. According to Business Insider, the EU are keen on holding talks with a major car manufacturer. The reason? To try and defuse the trade war before Trump has a chance to escalate it.
In June, Trump has turned his attention to the auto industry. Claiming he will place auto tariffs, according to Business Insider, he tweeted:
‘Based on the Tariffs and Trade Barriers long placed on the US and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US…
‘Build them here!’
Oxford Economics have declared that if the trade war continues, meaning US allies such as Europe, other countries and current trade war participant China, continue to be threatened by trade wars from the US, then 0.4 percentage points of global GDP could be wiped out! That’s about US$800 billion.
Obviously, this wouldn’t be a good outcome. With the steady increase in interest rates and the increase in oil prices, Adam Slater — lead economist for Oxford — wrote to his clients ‘The threat to world growth is significant’.
Global trade war ramps up
According to Business Insider, Trump’s continuing threats on other countries has led to an increase in potential economic damage.
- ‘UK chancellor Philip Hammond said a trade war would be a disaster – for the American economy.
- ‘HSBC said Trump’s decision to reimpose trade sanctions on Iran led to a rise in the price of oil by $US10 per barrel.
- ‘A separate Oxford Economics report estimated that new tariff threats would kill 100,000 American jobs in 2019 and shave off 0.1 percentage points off US GDP.’
Slater also cautioned readers on the very real threat of a 4% wipe out of global trade, he continued in his letter:
‘Recent tariff threats, if realised, would extend high tariffs to over 4% of world imports – a tenfold rise. This comes just as the global upturn shows signs of faltering. The threat to world growth is significant: in a scenario of escalating tariffs, our modelling suggests world GDP could be cut by up to 0.4 percentage points in 2019.’
If you look at the graph below, you can see the potential damage this trade war could inflict:
Source: Oxford Economics
[Click to open new window]
Trump’s continued threats of a trade war outbreak could have damaging and lasting effects on global GDP. And while Trump has yet to impose many of his planned trade tariffs, it could drastically impact nations all across the globe.
So could all these planned tariffs be a catalyst for a global financial crisis? Maybe. If you’re concerned about your financial position should there be a GFC 2.0, then look no further than reading Harry Dent’s book Zero Hour. In it, he explains the very real threat to Australia’s economy and provides pointers to how you can potentially save yourself from disastrous financial loss. Click here to find out more.
This week in Money Morning
In Monday’s Money Morning, Harje looks at the art of investing. Many people, especially those who haven’t attempted to invest in the share market, find the idea of investing complicated. Especially when you’re trying to pick what stocks to buy. Harje believes that most people are looking for the next Amazon. So why was Amazon so popular? Well, it’s all to do with customer service. If you would like to find out more about Amazon and what to look for in other companies similar to Amazon, then go here.
In Tuesday’s Money Morning, Harje informs readers about the scalping problem in China. Now, here at home in Australia, scalpers are usually selling things like concert ticks and sporting event tickets. But in China, their biggest scalping issue is hospital beds. An appointment is hard to get in China, and if you buy one from a scalper, you’re looking at paying over AU$600. Now the government is stepping in, buying much needed medical equipment to be able to take care of an aging Chinese society. Moving medical visits online may be the way to go for Chinese patients, to find out more, go here.
On Wednesday, Harje discussed the reasons the US doesn’t want to share the economic centre with China and India. But they may not have a choice, because both nations are on the climb and therefore increasing growth. Both nations are also increasing tech advancements. To find out more about the rise of China and India, click here.
In Thursday’s Money Morning, Harje explains why businesses such as Amazon has survived and how other bookstores haven’t. Borders shut down and it was considered one of the biggest bookstores in the world, however Amazon has been able to keep going. The reason? The internet. But then why did Microsoft become so big, and why did Google overcome Yahoo? Well, all of these companies consider their clients. Without a good customer service base, companies will continue to struggle. To find out more, go here.
In Friday’s Money Morning, Harje discusses why being the first innovator of a product or brand can sometimes have an advantage, as long as you can get a customer base up before a competitor steps in. But, as Harje explains in this issue, second is usually better. The US are currently the number one nation economically. But with the advancements of tech production increasing at a high rate, China and India are on their heels. Go here to find out how China and/or India could become the new number one.
Editor, Money Weekend