US tariffs to shock global trade amid emerging ‘new globalization’

LONDON

President Donald Trump’s additional tariffs on Canada, Mexico, and China are expected to shock global trade amid an emerging era of “new globalization,” with increasing protectionist trade policies and rising competition in technology.

Trump announced 25% additional tariffs will be imposed on imports from Canada and Mexico and 10% on Chinese goods, as well as 10% on Canadian energy imports, effective after midnight Eastern Standard Time (EST) on Tuesday.

The size of imports subjected to additional tariffs is estimated to reach $1.4 trillion.

Deutsche Bank said in a recent analysis that Trump’s tariffs are expected to be “the largest shock in global trade since the collapse of Breton Woods” in the 1970s.

“We see immediate recessionary consequences for some of the economies involved and broad-based negative read-across to the world economy,” it noted.

If these tariffs continue, the trade shock for Canada and Mexico could have a much larger impact, even larger than that of Brexit for the UK, and the tariffs will likely lead the two countries into recession in the coming weeks.

London-based Capital Economics said that Trump’s tariffs are “just the first strike in what could become a very destructive global trade war.”

The financial firm stated that the US will also impose additional tariffs on EU imports within a month or two, while a universal tariff may be coming in April.

“The resulting surge in US inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected. Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut,” it said.

‘Tariffs are not good for growth, investment at global level’

Paul Gruenwald, global chief economist at S&P Global Ratings, told Anadolu that the increasing protectionism in global trade will usher in an era of “new globalization” as trade flows continue to transform.

“Our view is that tariffs are not good for growth, they're not good for investment at the global level, and combined with some of the other policies that Trump is proposing, they might be putting more inflationary pressure into the system, so that also means a world of higher interest rates,” he said, noting that market players expect more volatility and firms are trying to protect themselves with measures.

Gruenwald stated that the Trump administration’s new policies of increasing growth, restricting trade, and deporting immigrants, will cause inflation to rise.

“There’s a rising risk that the Fed may actually have to start raising rates later this year, if the US economy doesn’t slow down and inflation pressures pick up, so that would be a shock, not only to the US, but for the rest of the world,” he said.

“We're watching closely tariffs this year, but also watching the Fed, which is essentially the world’s central bank, and whether they will need to change course later in the year, that’s something we've got on our radar screen,” he added.

Moving beyond China Plus One to new globalization

Gruenwald stated that globalization, which was prominent in global trade for many years, was when there were no borders and production was made in the lowest-cost places.

“My takeaway coming out of Davos is that the global trading system continues to evolve,” he said, and added: “An evolution of the US-China relationship, and firms in the global trading environment are correspondingly responding.”

“It looks like we’re going to something beyond the China Plus One strategy, and that’s currently called the new globalization,” he added.

Gruenwald highlighted that competition will increase between the US and China and the consequences of the new period, such as in economic growth, trade, and corporate profits will be analyzed.

He mentioned that tech advancements, especially in artificial intelligence (AI) will be key to the competition.

Gruenwald stated that while the US is a leading player in AI, China is ramping up its competition with recent developments, but Europe may be left behind in the “race for global influence” if it does not fix its structural issues and make the necessary reforms.