Trade War Erupts On No. 1 U.S. Farm Export to China

The Chinese’s retaliation measures have a strong impact on soybean.
The US price of soybean has dropped dramatically while at the same time its price in Brazil is surging.
Brazil which is already the main soybeans’ exporter will take advantage of the current mayhem between the US and China How a crop used in hog rations and cooking oil got caught up in a huge trade war — Read here www.bloomberg.com/graphics/2018-soybean-tariff/

Microeconomic impact of the White House’s trade measures

Nails, lobsters, peanut butter or bourbon all these products are suffering from the trade measures taken by the White House. The disruptions they imply are just anecdotal now but this will change progressively as these measures will persist. From microeconomic at the beginning, the impact will become macroeconomic and at the expenses of all.

Read more here

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China – US: the battle is just beginning

Donald Trump’s threats to world trade are a desperate attempt from the US to maintain the country’s world economic leadership. The most dramatic shift over the past 20 years has taken place in China, as the country has displayed stellar growth and now accounts for an increasingly large percentage of the world economy.

China has been one of the big winners from globalization, as citizens have enjoyed an impressive surge in income to the detriment of the middle and lower classes in developed markets, as shown by Branko Milanovic’s famous elephant chart. This chart also goes a long way to explaining recent political events in western countries: the middle classes across the board have ended up in a more unstable situation than 10 or 20 years ago, and this has major consequences for the way they vote.

The industrial momentum that very swiftly pushes up income is now the preserve of Asia, and China in particular. Industrial output across the US, Japan and Europe – the three major areas that drove world growth after the Second World War – has stagnated over the past ten years, while figures in Asia (excluding Japan) have doubled. The “Made in China 2015” plan seeks to further accelerate this shift.

This contrasting industrial momentum now comes firmly down on the side of Asia and acts as the focus for Trump’s trade measures against China. Output is no longer increasing in western countries, but rather in Asia, driving the region’s catch-up trend and reducing developed countries’ headway. The US is seeing its leadership diminish, while at the same time the situation also raises major challenges for Europe, although it has not taken the same aggressive course of action as the White House. Furthermore, the industrial revival in developed countries often referred to as “Industry 4.0” only seems to involve the substitution of existing production, rather than a true jump in production volumes. For the moment, this so-called revival is not sufficient to point to a reversal in the aforementioned trend towards the location of production in Asian countries. Continue reading

An explanation of the steel and aluminum tariff war in 16 points

The US imposed steel (25%) and aluminum (10%) duties on Europe, Canada and Mexico on May 31, reflecting Trump’s obsession to bring business back to the US and contain the country’s external deficit. He had already presented this idea right from his inaugural address (in French) at the White House, with his view of the world economy as a zero-sum game, meaning each country has to fight tooth-and-nail to get its hands on the biggest slice of the pie. This view is admittedly not helpful in understanding economic and growth momentum, but it is the view we are dealing with here.

Based on steel and aluminum exports to the US, the cost for Canada is very high at around 2 billion, as well as for Mexico (600 million) and the European Union at around 1.7 billion, including close to 400 million for Germany and 150 million for France. These are substantial figures, so they can have an impact on trade with the US.

So in the end, who will come out the winner from this tariff jostling? It is probably a no-win situation. A trade war is a bit like going 15 rounds in heavyweight boxing match…the two fighters make it through, but they are both a mess by the end and run the serious risk of some long-lasting after-effects.

We can raise a number of points:

1 – Announcements made at the start of March and on Thursday May 31 pushed steel prices up, as shown very clearly by the chart below. Continue reading