As global trade tensions escalate, the world teeters on the brink of a recession. The economic fallout of Trump’s trade policies is set to have far-reaching consequences for markets and economies around the globe.
Trillions of dollars have been wiped off the value of global stock markets in recent days, with investors growing increasingly nervous about the prospect of a wider trade war. The tariffs imposed by US President Donald Trump on most trading partners of the United States have sparked concerns that the global economy is on the verge of a slump.
The Trump administration implemented several significant changes to US trade policy, including the renegotiation of NAFTA, which became the USMCA.
The tariffs imposed on imported goods from China, such as steel and aluminum, were also a key aspect of his trade agenda.
Furthermore, the administration withdrew from the Trans-Pacific Partnership (TPP) and renegotiated the KORUS FTA with South Korea.
These policies aimed to reduce the US trade deficit and promote American manufacturing.
“The impact of these tariffs will be far-reaching,” said Paul Ashworth from Capital Economics, “with much higher manufacturing costs, falling business confidence, market volatility, and supply chain disruptions expected to occur.”
Asia has been hit harder than Europe, with levies of more than 40% on some key countries prompting Vietnam, Taiwan, and Indonesia to seek new trade deals with Washington.
The US economy has averaged nearly 3% growth since the end of the COVID-19 pandemic but now faces a “self-inflicted economic catastrophe” as a result of Trump’s tariffs. Research house Morningstar has warned that the US recession probability has increased to between 30% and 35%, while Goldman Sachs has raised its chances of a US recession in the next year to 45%.
A US recession is a period of economic decline in the United States, typically defined as two consecutive quarters of negative GDP growth.
According to the National Bureau of Economic Research (NBER), recessions occur when real GDP falls for six months or more.
The NBER has identified 11 recessions since World War II, with the most recent one occurring from 2020-2021 due to the 'COVID-19 pandemic'.
Recessions can be triggered by various factors, including monetary policy changes, fiscal policy shifts, and external events such as global economic downturns.
China, the only major economy to order retaliatory tariffs on US imports, is expected to implement monetary and fiscal measures to offset the impact. The Chinese government has criticized Trump’s tariffs as “economic bullying” and urged the US to resolve trade tensions in a mutually beneficial way.
The EU has also responded to Trump’s tariffs by agreeing to impose levies of 20% starting Wednesday on imports from the European Union to the US. The bloc’s executive arm, the European Commission, has signaled its commitment to engaging in negotiations with the US but also warned that it will defend its interests with proportionate countermeasures.
Despite the negative impact of these tariffs, some positive news emerged when two Trump advisers told US media that more than 50 countries have been in touch to seek new trade deals with Washington. Paul Ashworth from Capital Economics has written that despite Trump’s defiant rhetoric, he would soon realize that he had gone too far and announce a few “deals” that reduce the prohibitive reciprocal tariffs rates on some of the hardest hit countries.
Markets are now betting that Federal Reserve Chair Jerome Powell will soon announce US rate cuts earlier than previously expected. However, Steve Cochrane from Moody’s Analytics has warned that the US could fall into recession “very quickly” and that it could be “rather lengthy.”
The tariffs imposed by Trump have significant implications for China’s growth, with disruptions to export activities and substantial market volatility expected to occur. Beijing is trying to reassure Chinese readers that “the sky won’t fall… even if the US tariffs have an impact.” However, Goldman Sachs has warned that the new levies will lower Chinese GDP growth by at least 0.7 percentage points this year.
As the situation continues to unfold, investors and economists are left wondering whether the global economy can avoid a recession. One thing is clear: the impact of Trump’s tariffs will be felt for months to come, with significant implications for trade, economic growth, and market volatility around the world.
The global economy is a complex network of international trade, investment, and financial transactions.
It connects over 190 countries, with the United States, China, Japan, Germany, and the United Kingdom being among the largest economies.
The global economy is driven by factors such as globalization, technological advancements, and demographic changes.
According to the World Bank, global GDP reached $88 trillion in 2020, with an estimated growth rate of 2.9%.
The 'International Monetary Fund (IMF)' plays a crucial role in promoting global economic cooperation and stability.
