Trump’s tough trade moves to lead to trade war

US President’s Donald Trump’s tough trade practices and sanction policies are backfiring on the US and are likely to lead to a trade war, having far reaching effects on the world economy, Thailand included.

Therefore Thailand should be well prepared for the spillover effects by looking at what to do if the crisis really erupts, a senior economist at a securities company said.

The tough trade practices espoused by the US have already started to hit many countries like China, Russia, and the European Union (EU) and retaliations by those rocked by high import tariffs have taken place.

Retaliations have spilled over beyond trade into the financial side now that many countries have started to dump the US Treasuries, a move which could have a serious impact on the decades-long leadership of the US dollar.

US dollar
In the middle of this month, the White House imposed 25% tariffs on US$50 billion in Chinese imports. China immediately hit back with 25% tariffs on US$50 billion worth of US goods, including agricultural produce, autos and seafood.

With such response by China, President Trump raised the stakes by announcing on June 18 that the US will introduce tariffs on another US$200 billion in Chinese goods and will continue the fight if Beijing retaliates.

The Thai economist said this move by China will cause damage quickly to the US as the agricultural products are perishable.

“I think the US may have to dump those products elsewhere and Thailand should take a close look at that as if it is dumped on the Thai market, our farmers would be affected,” he said, adding that it’s the same with China, which may have to dump its products elsewhere, or move its plants to other countries, including Thailand, so as to export the products from outside its country to avoid the US tariff barriers.

President Trump has also threatened to widen the mounting trade dispute with the EU by imposing tariffs on European cars, after the EU retaliated by imposing higher tariff on American products including bourbon whiskey, Levi’s jeans and Harley-Davidson motorbikes.

If President Trump carries through the levy, it would have damaging effects on jobs and economic growth of both the US and EU. Leaders from American and European car manufacturers have previously said such measures would lead to net job losses in the US, which is the biggest market for EU car exports.

The trade disputes have also led to Russia and China dumping their US Treasury debt holdings as in April Moscow sold nearly half of its holding of the US debts, reducing it from $96.1 billion to only $48.7 billion.

China, the largest foreign owner of US Treasuries, cut its holdings by US$5.8 billion to US$1.18 trillion. Japan has diminished its Treasuries by US$12.3 billion to US$1.03 trillion. Ireland, the UK and Switzerland followed suit.

The senior economist said the looming US-Chinese trade war may finally prompt China to dump more US Treasuries. In 2017, China reduced its exposure to US Treasuries over six months, he said, adding that Beijing may use it as a last resort and if that happens, the US dollar may suffer a serious status loss and come one step closer to losing its leadership in the world financial system.

The source said President Trump has to impose higher tariff against other countries because he has cut corporate tax to help corporations and this has made its fiscal position weaker and he needs more tax revenue from imports.

President Trump also has a policy for the US to invest in its infrastructures, which requires a huge investment budget.

He also raised concern that if the trade war between Trump and the EU continues, the EU may have to stop its quantitative easing (QE) operation, meaning money will continue to flow out of the emerging markets affecting their stock markets.

Worse comes to the worst, which he said nobody wants this to happen, the trade and currency war could eventually lead to world war.


Top: US President Donald Trump and Chinese leader Xi Jinping. Photo: CNN

In-text: An artistic photo of a US dollar bill. Photo: Kurtis Garbutt (CC-BY-2.0)
By Kowit Sanandang