Global Trade War Blows Up

By DirectorCorps

December 1, 2019 All Industries Growth

Global trade wars are ramping up their damage to global economies, and it’s not just the tensions between the U.S. and China that are to blame.

In July, Japan announced that it would restrict exports of three chemicals to South Korea used to produce semiconductors and display screens. South Korea’s Samsung Electronics Co. and SK Hynix supplied 61% of the components used in memory chips in 2018, potentially disrupting production and global trade even further. They supply tech heavyweights Apple and Huawei Technologies Co.

It’s not exactly clear why, but some believe Japan is retaliating for a decision last year from South Korean Supreme Court ordering two Japanese companies pay reparations for forced labor of Koreans during World War II. The two economies are closely linked, so an escalation of the trade war could “lead to mutually assured destruction,” according to Waqas Adenwala, Asia analyst at consultancy The Economist Intelligence Unit, as reported by CNBC.

Don’t forget the tensions between the U.S. and its closest trading partners, Mexico and Canada. In 2018, the U.S. hit Mexico and Canada with tariffs on steel and aluminum imports. That in turn hurt manufacturers who rely on imported metals and, oddly enough, U.S. pork producers. Mexico assessed 20% retaliatory tariffs in response, costing the pork industry $1.5 billion. Last year, Mexico and Canada bought over 40% of the pork exported from the U.S, according to CNBC. The countries lifted the tariffs in summer 2019, but according to some news reports, swine farmers still hadn’t recovered as of November.

The decision to stop the retaliatory tariffs was replaced by another threat. This time, President Donald Trump’s administration threated to impose tariffs on Mexico if it didn’t stop Central American migrants from moving through Mexico toward the U.S. border. The threat worked. Mexico agreed to stem the flow of migrants, and the tariffs were suspended.

The U.S. also slapped tariffs on European goods in a fight over Europe’s subsidies for Airbus. European exporters have been hit with 25% tariffs on everything from cheese to wine, while the European Union retaliated with tariffs on everything from bourbon to Harley-Davidson motorcycles. Meanwhile, trade with China fell 7% in 2018 compared to the previous year, or about $9 billion, according to the U.S.-China Business Council’s September 2019 report.

The White House has downplayed the tariffs’ impact but some economists are worried about the impact of the tariffs on global growth.

The International Monetary Fund estimates that global growth could slow to the lowest level since the financial crisis of 2008-2009. By 2020, announced tariffs would reduce global output by $700 billion, about the size of Switzerland’s economy, the group said.

Joshua Shapiro, the chief U.S. economist at the research firm MFR put it this way in a note to investors: “In this very dangerous game of ‘chicken,’ the global economy may end up as roadkill.”