Trade war: America risks killing the global growth it needs

It's been a bad week for the global economy, and the United States just made it even worse.The Trump administr...

Posted: Jun 15, 2018 4:47 PM
Updated: Jun 15, 2018 4:47 PM

It's been a bad week for the global economy, and the United States just made it even worse.

The Trump administration confirmed Friday that it would move forward with tariffs on $50 billion of Chinese exports. Beijing called that a declaration of a trade war, and promised immediate retaliation.

The week began with a chaotic G7 summit where simmering tensions over President Donald Trump's trade policies led to a deep split with America's closest neighbors and allies.

Protectionism is now threatening to slow global trade, and undermine growth and jobs in the United States.

Germany has slashed its economic forecasts, new data show China may already be slowing, emerging markets are coming under pressure and the International Monetary Fund is sounding the alarm.

"The clouds on the horizon ... are getting darker by the day," IMF Managing Director Christine Lagarde said earlier this week.

It wasn't supposed to happen this way: The global economy started the year on a broad upswing that had only strengthened since it began in 2016. With momentum expected to continue into 2019, policymakers were urged to take advantage.

Developments over the past week suggest that economists may have been much too optimistic.

Related: China says 'The US has launched a trade war'

The central bank in Germany, which boasts the largest economy in Europe, slashed its growth forecast for 2018 by half a percentage point on Friday to 2%, and its president warned that uncertainties "are considerably greater than they were."

"The most recent discussion on trade started by the United States has again led to an increased risk of growing protectionism worldwide," the central bank said. "An escalating global trade dispute or widespread rises in import tariffs would have a marked negative impact on Germany."

There are plenty of headwinds elsewhere in Europe: A political crisis in Italy raised doubts about its continued use of the euro, Britain is unable to provide clarity on Brexit and France is wrestling with labor strikes.

The European Central Bank, which said Thursday that it would end its -2.5 trillion ($2.9 trillion) stimulus program, also promised not to hike interest rates until the middle of next year - a reflection of risks to the economy.

In China, new data show that credit and investment growth have taken a major hit. The world's second-largest economy is also suffering from weaker consumption and export growth.

"The surprising resilience of China's growth this year has been a very helpful buffer for the global economy amid various emerging headwinds," wrote analysts at Oxford Economics. "Economic data suggest that the slowdown in China ... is now coming through."

Hopes of a rebound in emerging markets have been dimmed by Federal Reserve rates hikes and a stronger US dollar, which discourages investment in countries such as Brazil and Indonesia. The trend has forced multiple interest rate hikes in Turkey and Argentina, which has also accepted an IMF bailout.

Related: China is killing his business. Tariffs could make or break it

In the face of these headwinds, economists are urging the Trump administration to change course.

The IMF made clear this week that US trade and fiscal policies threaten to further undermine global growth and ultimately drag down the United States.

Lagarde warned that rising federal budget deficits could cause the American economy to overheat, necessitating US interest rate hikes that would put emerging markets under more pressure.

"We are already starting to see symptoms of such negative effects in some emerging market countries, and this might not be the end of it," she warned.

The second piece of advice from the IMF boss has been repeated in national capitals across the globe: Stop with the tariffs.

"Let us not understate the macroeconomic impact [of the trade spat]," Lagarde warned. "It would be serious, not only if the United States took action, but especially if other countries were to retaliate."

Related: IMF's Lagarde warns US about trade, deficits

Trump's former economic adviser Gary Cohn said Friday a trade war could wipe out the benefits of tax cuts.

The first shots are already being fired.

China's Commerce Ministry said it would immediately launch retaliatory tariffs and nullify trade agreements previously negotiated with the United States. If Beijing follows through, Trump has promised another round of tariffs on Chinese goods.

Barclays estimates that a full percentage point could be knocked off global economic growth next year if the United States slaps tariffs on $100 billion in Chinese goods and Beijing responds with dollar for dollar penalties.

"The increased uncertainty and risks [from the trade fight] will weigh on business confidence and investment," wrote analysts at Oxford Economics. "There will be an impact on growth, in China, the United States and elsewhere, at a sensitive time for the global economy."

Lafayette
Partly Cloudy
29° wxIcon
Hi: 44° Lo: 29°
Feels Like: 29°
Kokomo
Partly Cloudy
23° wxIcon
Hi: 46° Lo: 23°
Feels Like: 17°
Rensselaer
Partly Cloudy
30° wxIcon
Hi: 43° Lo: 27°
Feels Like: 25°
Lafayette
Partly Cloudy
29° wxIcon
Hi: 43° Lo: 28°
Feels Like: 29°
Danville
Partly Cloudy
31° wxIcon
Hi: 45° Lo: 28°
Feels Like: 24°
Frankfort
Partly Cloudy
27° wxIcon
Hi: 45° Lo: 27°
Feels Like: 20°
Frankfort
Partly Cloudy
27° wxIcon
Hi: 42° Lo: 25°
Feels Like: 20°
Monticello
Partly Cloudy
28° wxIcon
Hi: 46° Lo: 26°
Feels Like: 28°
Monticello
Partly Cloudy
28° wxIcon
Hi: 41° Lo: 27°
Feels Like: 28°
Logansport
Partly Cloudy
25° wxIcon
Hi: 41° Lo: 25°
Feels Like: 25°
Mild Conditions Continue Wednesday
WLFI Radar
WLFI Temps
WLFI Planner

WLFI is promoting fire safety with FREE smoke detectors

 WLFI and several local fire departments are helping with your fire safety this winter. CLICK HERE. 

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 657037

Reported Deaths: 12450
CountyCasesDeaths
Marion901321624
Lake48105871
Allen35552632
Hamilton31839393
St. Joseph29538510
Elkhart25261412
Vanderburgh21115377
Tippecanoe19765197
Johnson16242352
Porter15838267
Hendricks15723296
Clark11843179
Madison11672314
Vigo11503228
Monroe10248158
Delaware9788178
LaPorte9720194
Howard9017194
Kosciusko8514107
Bartholomew7373147
Warrick7369146
Hancock7362128
Floyd7139164
Wayne6586188
Grant6395157
Morgan6040124
Boone603388
Dubois5868111
Dearborn540266
Henry539492
Marshall5390104
Cass537199
Noble506775
Jackson462063
Shelby458490
Lawrence4154111
Gibson399681
Harrison395160
Clinton392353
DeKalb382078
Montgomery381583
Knox354484
Miami354063
Whitley346235
Huntington338176
Steuben335955
Wabash328775
Putnam325959
Ripley325161
Adams320249
Jasper312943
White295351
Jefferson292770
Daviess284296
Fayette270255
Decatur269388
Greene259978
Posey259731
Wells255374
Scott248446
LaGrange240170
Clay238944
Randolph225076
Spencer215830
Jennings213544
Washington207727
Sullivan202038
Fountain200341
Starke185950
Owen181652
Jay177328
Fulton176437
Carroll175618
Perry172435
Orange170450
Rush163922
Franklin158335
Vermillion158040
Tipton145441
Parke137915
Pike127232
Blackford120027
Pulaski105643
Newton96431
Brown94639
Benton91113
Crawford90113
Martin80114
Switzerland7507
Warren74612
Union66810
Ohio52711
Unassigned0425

COVID-19 Important links and resources

As the spread of COVID-19, or as it's more commonly known as the coronavirus continues, this page will serve as your one-stop for the resources you need to stay informed and to keep you and your family safe. CLICK HERE

Closings related to the prevention of the COVID-19 can be found on our Closings page.

Community Events