US President Donald Trump’s tariffs are slowing a world economy that relied on predictable and largely free trade for decades.
Last week, multinationals and specialist e-commerce companies slashed sales forecasts, warned of job cutbacks, and evaluated their business plans, while major economies revised down growth prospects amid poor statistics.
Financial markets are wagering the US and China will stop their trade war and that Trump will strike deals to avoid more tariffs, but the uncertainty of where this ends has become a huge drag.
“US tariff policy is a serious negative shock for the world in the near term,” said BNP Paribas group head economist Isabelle Mateos y Lago.
“The US tariffs end-game may be further away and at a higher level than previously thought,” she said of 10% blanket tariffs and higher sector-specific charges on steel, aluminum, and cars.
Beijing said Friday it was considering Washington’s offer to negotiate 145pc US tariffs, to which it answered with 125pc. The Trump administration has also hinted at arrangements with India, South Korea, and Japan to avoid further tariffs in weeks.
Electrolux cut their outlook, Volvo Cars, Logitech, and Diageo abandoned their targets due to uncertainties.
The loss of “de minimis” duty-free protection for Chinese e-commerce items under $800 last week hurts many smaller firms.
“We’re going from zero to 145pc, which is really untenable for companies and customers,” remarked Cindy Allen, CEO of global trade consultancy Trade Force Multiplier.
“I’ve seen many small to medium-sized businesses leave the market.”
Silver lining
Last week, the Bank of Japan lowered its GDP estimates due to tariffs, and the Netherlands and MENA region downgraded theirs due to trade concerns.
While official measurements of activity in top economies are slowly catching up with the pessimistic attitude, highly followed surveys of factory purchasing managers worldwide are showing it.
Last week, one poll revealed that China’s factory activity declined at the highest pace in 16 months in April, while a UK report showed British industry exports falling at their fastest pace in almost five years.
Export-focused Germany’s better reading may be attributable to factories front-loading business to get it out before tariffs take effect, economists warned.
“[This] means that there might be a backlash in the coming months,” cautioned Hamburg Commercial Bank AG chief economist Cyrus de la Rubia.
Front-loading may have helped India to a 10-month manufacturing growth high in April, but analysts said the country, which has lower tariffs than China and where Apple has transferred some output, might triumph.
Shilan Shah, an emerging markets economist at Capital Economics, predicted punitive tariffs on China would be “here to stay” and that India may replace China as a US supplier of commodities.
Most economists describe the Trump tariff gambit a “demand shock” to the international economy, which will raise import prices for American businesses and consumers and reduce global activity.
This may reduce inflationary pressures, allowing central banks elsewhere to bolster the economy via interest rate cuts, as the Bank of England is doing this week.
Global economic growth estimates for key economies—Reuters.
Trump’s attempt to rebalance the trading system in America’s favor may prompt other nations to revamp their economies, such as China boosting domestic stimulus or euro zone countries removing barriers to their single market.
