202-640 2057

©2017 by Hackett Associates, LLC

The Threat of a Trade War

March 9, 2018

Fixation on the negative balance of payments in trade has created a clear and present threat to global trade. What started out as an announcement of tariffs on steel and aluminum by President Trump is rapidly turning into a potential trade war. The unnerving thing about this is the false premise on which the tariffs are based.

 

China is being blamed for flooding the market with cheap steel due to its excessive production, yet the two largest exporters to the United States are Canada and the European Union. China, Korea and Taiwan only have small shares of the market, yet it is these countries with whom the United States has the largest trade deficits.

 

With threats and counter-threats of tariffs on goods such as cars, whisky and blue jeans, we can witness how trade wars begin. The global economy is drifting into increasing uncertainty just at a time when all the signs for sustained growth were otherwise clearly visible. In the United States, real gross domestic product increased 2.3 percent in 2017 over 2016 – far stronger than the 1.5 percent growth seen in 2016 – and 2018 has been expected to improve on this. Manufacturing output, although slowing marginally, remained strong in February. The only weakness was month-to-month growth in consumer spending, and even there year-over-year growth was strong.

 

Our projections for this year reflect all of this, with container imports now forecast to grow 4.1 percent, down from last month’s projection of 4.4 percent. With the total shipping capacity on the transpacific routes expected to increase by at least eight percent to both U.S. coasts, shippers can expect ocean freight rates to remain weak.

 

The danger is that a potential tariff war would have a negative impact on cargo growth to the detriment of both the consumer and U.S. industry. The likelihood of an increase in exports evaporates as well, killing off any chance for an improvement in the balance of trade. The art of the deal does not work in this environment and can cause both strategic and economic damage as we lash out at our closest partners.

Please reload

Recent Posts

April 10, 2019

Please reload

Archive

Please reload

Tags

Please reload