The tariff war between the US and China which kicked off on Friday will have a negative impact on both the American and Chinese economies, but it will also directly impact other large Asian economies. Meanwhile, the EU prepared a list of American goods which will be targeted if President Trump raises import tariffs for cars to 20 percent.
The US 25 percent tariffs on imports of Chinese goods, estimated to amount to $34 billion, came into force at midnight on Friday, with China responding by introducing a 25 percent tariff to 545 American goods, worth in total $34 billion.
Beijing accused the US of launching the “largest trade war in history,” with the Chinese trade ministry adding that “China is forced to counter the tariffs imposed in order to protect the interests of its people.” There is no doubt that the tit-for-tat imposition of tariffs will reduce global trade, which grew by 11 percent last year to $17.2 trillion, business daily Poslovni Dnevnik reported on Monday.
Estimates say that every $100 billion in trade burdened by tariffs reduces global trade by some 0.5 percent, and vuts global economic growth by 0.1 percent. American tariffs are expected to reduce China’s economic growth by 0.1-0.3 percent, with its exports estimated to drop by 1 percent. The damage to the US is expected to be on a smaller scale. However, indirect consequences might be much more pronounced and might be felt outside China and the US.
According to data by the Peterson Institute for International Economics, almost two thirds of American imports from China – worth $506 billion in 2017 – are produced by companies with ownership stakes held by foreign capital, which mainly comes from the US, Japan, and South Korea. Since it is likely that US tariffs would affect American companies with investments in China, some analysts believe that the US might suffer more by the tariff war than China.
The economies which are thought to be most exposed to adverse effects of the tariffs are South Korea, Malaysia, Taiwan, and Singapore. South Korea’s GDP might shrink by 0.4 percent this year, Malaysia’s and Taiwan’s by 0.6 percent, and Singapore’s by 0.8 percent.
Meanwhile, the European Union is already preparing its own set of measures to reply to tariffs on European cars that had been announced by President Trump, according to the Financial Times, and reported by Poslovni Dnevnik.
If the US indeed introduces its planned car tariffs, Brussels will respond by €18 billion tariffs on a host of imported American goods, including American ketchup, frozen fish, luggage, and self-adhesive tape. Trump has repeatedly claimed that car imports is one of the main causes of the US’ $151 billion trade deficit with the EU. The US currently levies a 2.5 percent import tariff on cars, while in the EU it is 10 percent. Trump proposed raising the American tariff to 20 percent.
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