Global trade war, threat to global stability

Global trade war, threat to global stability
Published: 09 July 2018
As our space is clouded by the political dust from the campaign trails, something big is brewing out there. And that something is a potential global trade war. Any promise of economic growth from our aspiring candidates will depend on the stability of the global economy. And with the global economic stability under threat perhaps, we can ask aspiring leaders how they intend to navigate the rigours of the global economy that faces a huge potential trepidation.

In general, a global trade war is when a country raises its tariffs on one or more countries' imported products or services and the receiving country(ies) retaliate by also imposing the same tariffs on the products of that country.

Tariffs are taxes imposed on imported goods and services. Tariffs are often imposed with the objective of promoting and/or protecting locally-made substitutes from being overwhelmed in the market by foreign-made products or services.

For instance, if a country produces vehicles, it can impose higher tariffs on imported cars to make them less affordable compared to locally-made.

That way, it is expected that buyers would buy locally-made products due to their affordability.

Donald Trump too recognises that the only way to strengthen an economy begins with promoting local businesses and their products and yet our "open for business" policy seems to suggest that our locals are only beneficiaries of foreign investors.

Millions of dollars are still spent on items that can be produced locally by our local businesses.

However, the Trump approach to his policy of trying to make America great again has been more radical, bullish, less calculated and has created a possible cause for global trade war.

He has indeed riled most of the United States' trading partners, most of whom have retaliated. While the rhetoric back dates to the campaign season, the real drama started in January this year with Trump introducing tariffs on solar panels and washing machines mainly those made in China.

In March, the US introduced a 25% tariff on steel imports and 10% on aluminum imports from China. In April, China retaliated by imposing tariffs on $50 billion worth of American imports.

In response, just last month, the US threatened tariffs on $200 billion of Chinese goods, on top of $50 billion already announced. They threatened an additional $200 billion worth of Chinese goods, if China retaliates again. The US has now imposed trade tariffs on Canada, India, Mexico, Russia, and the European Union, and these too have also already retaliated.

While global economic analysts have argued that the world is still far from a full blown trade war, there is no doubt that the threat to global economic growth will be significant and may be the World Trade Organisation need to call for an emergency conference to address this issue.

Prevention is better than cure, that is if a cure can be found on this.

As the global trading partners have been sizing each other up, it is worth noting that the challenge with trade wars is that they do not start and end in the economic rings.

If unmitigated, they may soon trigger social unrest and cause political instability in some countries.

Already business that have been hit with higher costs triggered by tariffs have the option of scaling back their operations, downsizing their staff or hike prices of their products and services.

The effects of these will eventually fall on the shoulders of ordinary people as they either lose their jobs or face higher prices of products and services.

That is not the only frustration. It is worse enough to lose a job, but if business is no longer able to access the materials they need; it means there will be shortages of products made from imported materials.

Shortages tend to lead to price hikes in order to control demand. Again, that is a recipe for global frustrations. In the countries that are directly affected, investor confidence would wane and lack of predictability stalls investment decisions, while a supply chain disruption could dent the current global economic growth.

Some businesses in the affected countries are already feeling the impact of the global trade confrontations. It is now feared that these global trade confrontations by major economies may push the world to the verge of another financial recession.

It may seem these things are unfolding in distant horizons for a Zimbabwean whose preoccupation at the moment is who is going to be their next president. But the fact of the matter is that African economies are already feeling the heat and so are you.

It does not help that the possible global trade war is manifesting at a time when central banks across the world are raising interest rates and the price of oil is on the spike. We may also brace for price hikes, since we now depend on imports.

Here in South Africa, the rand has struggled to stabilise over the past week, mainly due to the same factors. Fuel has gone up and the prices of basic commodities may follow suit soon.

Tapiwa Gomo is a development consultant based in Pretoria, South Africa
- newsday
Tags: Trade,


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