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Minimizing trade war risks

| Posted by: Paul Donovan | Tags: Paul Donovan

  • A tariff is just a tax on consumers. The US administration has announced its list of products partially made in China for which consumers must pay a 25% tax. However, the administration said that it had chosen items that would minimize the effect on US consumers. This suggests an ineffective policy.
  • The US trade tax is not likely to reduce global trade. The trade tax is likely to redistribute global trade. A lot of the tax will probably be avoided (tariffs being about 150 years past their time). China may export less to the US, but more elsewhere. The rest of the world may export more to the US but less elsewhere, as Chinese products are diverted.
  • German politics looks almost interesting. The governing coalition is split over immigration policy. The split is dividing different coalition parties. There is a two-week period to resolve the dispute. The near-term economic impact is close to zero. Over the longer term, the dispute raises questions over trend growth and EU reform.
  • The EU and Poland continue to disagree in public over rule of law issues. The ECB central bank forum starts today, and may offer insight into the direction of policy after policy changes.