How Will a Trade Deal after the US Presidential Election Affect Global Trade?

From the US, policy of no limit to prosperity and broadly shared prosperity to the era of import tariffs imposed by US President Donald Trump on China, Brazil, and Argentina indicate that the US is hell-bent on rattling the global economy for its benefits. US President Donald Trump announced that a trade agreement with China might have to wait until the US presidential election in November 2020, which means the trade war could drag on until 2021. The US president’s quote “I have no deadline” has dashed all hopes of a solution to the trade dispute that has severely impacted the global economy. In the hope of a deal, investors pumped billions of dollars in the share market, but Trump’s quote came as a rude shock to the investor’s community across the globe. With Trump’s comments, European share prices, US stock futures, and the Chinese Yuan currency fell, causing jitters in the business community.

According to some economists, Trump’s comments might be a ploy to gain an upper hand in the negotiations and compel China to toe the US line. Reportedly, China and the US have made progress in the trade deal, but the deal is stuck on whether existing US tariffs will be removed and over the quantum of Chinese purchases of US agricultural products as part of a “phase one” trade deal. The Chinese side believes that President Trump needs an agreement before the end of the year due to the presidential election.

Impact of the trade war

Both developed and developing nations are feeling the pain of the trade war. A developed economy, such as Iceland, which is dependent on tourism, is witnessing a drastic reduction in tourist arrival since the crisis. European countries that are open to trade and rely on exports are feeling the heat of the trade war.

The German economy, which gains maximum from exports, is on the verge of recession. Uncertainty in the business community is prevailing across the globe. Many companies are scaling back their investment plans, something that will have repercussions for years to come.

Trade links between countries have led to prosperity and a more peaceful world. Even the United States hasn’t been immune from the impact of the trade wars. American farmers have been hurt by Chinese retaliatory tariffs on US agricultural products, compelling the Trump administration to shell out billions for farmers’ aid. According to economists, businesses in China have passed on almost all tariffs’ costs to American importers. But retailers in America are absorbing at least some of the duties, rather than passing the entire cost on to their customers. It shows that American businesses have had less success in passing on the values of tariffs to Chinese importers because of the types of goods being sold. The types of specialized consumer goods, like laptops and smartphones, that China exports to the United States are difficult to substitute, while China can easily swap Brazilian soybeans for American ones.

On the flip side, the trade war has resulted in gold prices going up with investors reposing faith on safe-haven assets. The trade tensions are helping the African nations to create a more self-reliant continent. India has emerged as a frontrunner for US giants, such as Apple and Microsoft, to expand their bases due to growing pressure on US companies to shift their headquarters from China. The trade war has also offered India an opportunity to lure firms to use the country as an exporting base.

Talking to InsideOver, Dr SP Sharma, Chief Economist, PHD Chamber of Commerce and Industry (PHDCCI) said that the trade war has impacted 0.8 per cent of the global economy, i.e., USD 700 billion, and the trade war should end at the earliest. Dr Sharma added that the U.S. President Trump’s quote is merely an election gimmick. Elections are around the corner in the US; in the tussle with China, Trump would not like to do anything that would harm the US or the global economy. Other economists, too, echoed the same opinion and added that in cases of dialogues with North Korea and Taliban, Trump earlier had rebuked both of them but later on joined the negotiation table.