Global Trade War Fears: Economists Weigh In on Trump’s Tariff Plans
As the world prepares for a potential global trade war, economists and strategists are weighing in on the implications of U.S. President-elect Donald Trump’s proposed tariff hikes. Despite China being at the forefront of this risk, many experts believe the consequences for global trade may not be as severe as currently anticipated.
A Negotiation Tactic?
Carie Li, global market strategist at DBS Bank, Hong Kong, suggests that Trump’s tariff hikes could be a negotiation tool, based on his previous actions. “It makes sense to me,” Li said, “as inflation remains a key problem facing the U.S.” Trump’s team is working to avoid a spike in inflation, which could be a key motivator behind the proposed tariffs.
The Impact on Trade Flows
Trump’s proposed tariffs, including 10% on global imports, 60% on Chinese goods, and a 25% import surcharge on Canadian and Mexican products, could significantly disrupt trade flows, raise costs, and draw retaliation. However, Minxiong Liao, senior economist and director at GlobalData.TS Lombard APAC, believes that these tariffs could ultimately be a useful tool in negotiating better deals with trade partners.
Global Economic Growth at Risk
The World Bank has warned that U.S. tariffs of 10% could reduce global economic growth by 0.3 percentage points in 2025 if trading partners retaliate. Tianchen Xu, senior economist at the Economist Intelligence Unit, forecasts that the weighted average tariff rate for China could increase by as much as 20 percentage points between 2025 and 2027, while rates for the rest of the world are unlikely to exceed 5 percentage points.
China’s Response: Debt and Depreciation
China’s plan to maintain a 5% growth level by increasing debt and allowing the yuan to depreciate has raised concerns about structural problems in the world’s second-largest economy. Tianchen Xu warns that depreciation could hurt investor confidence in the currency and the Chinese economy, forecasting 7.5 yuan/dollar as a critical threshold for China’s central bank in 2025. Carie Li agrees, suggesting that if the PBOC loosens its grip on the RMB market, “USD/CNH may be at risk of testing 7.5000.”
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