A flurry of news releases last week from many sources have started to shed light on the economic effects of these ongoing, expanding, rounds of tariffs started by the USA between increasing numbers of countries.
Trade Barriers and Confusion are Wreaking Havoc for Manufacturers
Just Friday a new flurry of tariffs and counter-tariffs were launched, by the USA and by China. Retaliatory tariffs put in place against the US by Canada came into effect on Monday.
The minutes of the latest US Federal Reserve meeting were released Thursday, a day before the US was due to start imposing tariffs on US$34 billion of imports from China on Friday, with Beijing set to target an equal amount as a nascent trade war between the two largest economies takes centre stage in an escalating series of disputes, according to the Financial Post Friday.
According to minutes of the Fed’s June meeting, some businesses indicated they had already “scaled back or postponed” plans for capital spending due to “uncertainty over trade policy”, while a larger group voiced concern about the impact of trade restrictions on future investment.
In minutes of their June meeting released on Thursday, central bankers said “uncertainty and risks associated with trade policy had intensified, adding they “were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending,” said Business Insider also Friday.
As well, the U.S. Chamber of Commerce last week Monday denounced President Donald Trump’s handling of global trade disputes, issuing a report that argued tariffs imposed by Washington and retaliation by its partners would boomerang badly on the American economy, said Reuters that Tuesday.
The Chamber, the nation’s largest business lobbying group and a traditional ally of Trump’s Republican Party, said the White House is risking a global trade war with its push to protect U.S. industry and workers with tariffs.
The group’s analysis of the harm each U.S. state could suffer from retaliation by U.S. trading partners painted a gloomy picture that could bring pressure on the White House from Republicans ahead of congressional elections in November.
Projections of US Tariff Effects on Canada
For it’s part, the Conference Board of Canada released a statement last week Thursday, saying The Trump administration offers the most prominent example of a populist protectionist trade agenda, said the Globe and Mail. But Italy’s new populist government is balking at ratifying the Comprehensive Economic and Trade Agreement due concerns about lack of protection for Italian specialty foods.
The likely consequences of protectionist trade policy in the short term are tariff-driven price increases for U.S. consumers and businesses, and countertariffs from trade partners that will frustrate U.S. exporters’ access to other markets.
“In the months to come, we expect to read stories of exporters in both Canada and the United States losing market access, leading to job losses and firms in distress. Economies will lose efficiency and the competitiveness gains that result from trade. An all-out trade war cannot be ruled out, one that would impair global economic growth, said the Conference Board statement.”
- Conference Board of Canada
In terms of US tariffs already imposed, the World Trade Organization has ruled largely in favour of Canada in a dispute with the United States over duties on glossy paper, said the Financial Post Friday. <pls hotlink to: https://business.financialpost.com/news/economy/wto-rules-in-canadas-favour-on-dispute-with-u-s-on-glossy-paper-duties >
The WTO said Thursday it found the U.S. Department of Commerce acted inconsistently with trade rules in its justification for imposing countervailing duties on supercalendered paper, which is mainly used in magazines, catalogues, corporate brochures and advertising inserts.
Canada had asked in 2016 that the WTO look into the duties, and how the U.S. went about investigating the issue.
During it’s own investigations, Madison’s has been told that the US west coast pulp and paper company, North Pacific Paper Company (or NORPAC) — which bought the Longview, WA, pulp mill from Weyerhaeuser in 2016 — was having serious problems maintaining the bacteria population in it’s tailing ponds. To the point that it had to shut down repeatedly.
“It is extremely ‘interesting’ [read: suspicious -ed] that this same company which has encountered such operational problems is the one which launched the latest US newsprint tariffs. It is also the only US pulp producer which supports these tariffs.”
-Madison’s Lumber Reporter
US and China Escalate Trade Spat
As if all this wasn’t confusing enough, the United States and China announced counter-duties on US$34 billion worth of each other’s imports on Friday, with Beijing accusing Washington of triggering the “largest-scale trade war” as the world’s two biggest economies sharply escalated their conflict.
Hours before Washington’s deadline for the tariffs to take effect, U.S. President Donald Trump upped the ante on its largest trading partner, warning that the United States may ultimately target over US$500 billion worth of Chinese goods, or roughly the total amount of U.S. imports from China last year.
U.S. tariffs on $34 billion in Chinese imports took effect as a deadline passed on Friday, and with Beijing having vowed to respond immediately in kind, the world’s two biggest economies took a high-stakes turn towards all-out trade conflict.
China‘s commerce ministry said in a statement shortly after the deadline passed that it was forced to retaliate, meaning $34 billion worth of imported U.S. goods including autos and agricultural products also faced 25 percent tariffs.
“We can probably say that the trade war has officially started,” said Chen Feixiang, professor of applied economics at Shanghai Jiaotong University’s Antai College of Economics and Management.
“If this ends at $34 billion, it will have a marginal effect on both economies, but if it escalates to $500 billion like Trump said, then it’s going to have a big impact for both countries.”
“Our baseline forecast assumes only a modest further escalation in the trade ‘war’ this summer,” Bank of America Merrill Lynch said in a Friday note. “However, we can’t rule out a full-blown, recession-inducing ‘trade war’,” it said.
- Chen Feixiang, professor of applied economics at Shanghai Jiaotong University’s Antai College of Economics and Management.
A China central bank adviser said the planned U.S. import tariffs on $50 billion worth of Chinese goods – $34 billion plus a planned follow-on list worth $16 billion – will cut China’s economic growth by 0.2 percentage points, the official Xinhua news agency reported Friday.
China’s tariff list is heavy on agricultural goods such as soybeans, sorghum and cotton, threatening U.S. farmers in states that backed Trump in the 2016 U.S. election, such as Texas and Iowa.
China lodged a case with the World Trade Organisation (WTO) against the United States, its commerce ministry said in a one-line statement late on Friday last week.