It all started with one result and that result was Donald Trump coming back to power in the United States of America. The whole world was surprised by the way Donald Trump came back to power and became the 47th President of the United States and as soon as he came in power, he made people feel nostalgic with his aggressive trade decisions and the most unprecedented and important decision of which was imposing 25% of tariffs on all import from Canada, Mexico and 10 % additional on China on top of existing tariff. This decision has created instability at a very large extent in the financial market, in response to which China and Canada, without wasting any time, retaliate and imposed tariffs on US imports as well, which has created an imbalance in the global markets and has given rise to the possibility of a world trade war.
A Worldwide Economic Turmoil
Credit: The Guardian Design
The immediate repercussions of Donald Trump’s decision were immediately felt across global stock markets and Asian markets experienced a decline of two percent and along with that the European
indices also faced a similar decline. In the automotive industry, and particularly Germany bore the brunt of these new policies as Germany is a major car exporter and its economy is dependent on car exports, and the major car companies of Germany have their production facilities in North America.
Alongwith the North American auto industry is also deeply intertwined, as components cross borders multiple times and are assembled in various countries, including US, Canada and Mexico before the final car is ready.
Energy market also responded to this immediately, where crude oil prices surged by 2% amid fears of supply disruption in Canada, which is facing a 10% tariff on its energy exports. The dollar also surged against global currencies and in some countries the difference is the highest of all time, like India, and this has created uncertainties among global investors.
The Law of Action and Reaction
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Mexico and Canada, which are allies and top trade partners of the US, wasted no time in responding to Trump’s tariffs. Canadian Prime Minister Justin Trudeau opposed this decision and decided to impose 25% levies on over 105 billion US goods and at the same time Trudeau appealed to the people of Canada to support domestic products and reduce dependence on US products.
Similarly, Mexico has also begun targeting American agricultural goods and manufactured products.
China too did not back down from this, it also promised to take “necessary countermeasures” and took it to the World Trade Organization and within an hour Beijing decided to impose a 15% tariff on American liquified natural gas, coal and on other commodities.
Although, after the retaliation by Canada, China and Mexico, the US has agreed to put these decisions on hold for 30 days as the negotiation continues but the tariffs on China remain intact.
Triumph or Economic Miscalculation?
Although Trump claims, the purpose of these tariffs was to boost US manufacturing units and reduce the imbalance in trade, but most economists argue against this and say that it will prove to be harmful for the US itself. According to Deutsche Bank’s estimation, these new tariffs will affect almost 44 percent of US imports, which is a part of about 1.35 trillion dollar trade and this can increase inflation in America by about 1%.
And Wolf Research estimated that “the average price of a new vehicle in the US could increase by up to $3,000”, which will become a further financial burden on middle class Americans.
And in addition, the disruption in the supply chain and the increase in the price of raw materials can lead to huge job losses, especially in those industries which are completely dependent on international trades.
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