The global economy Downward pressure has eased — Photo: Special

JAKARTA (TheInsiderStories) – The global economy is closer to the damage after the United States (US) President Donald Trump revved up his global trade war on Monday (12/02), announcing tariffs on industrial metals from Brazil and Argentina while threatening even harsher penalties on dozens of popular French products.

The administration said the moves were necessary because US trading partners were acting unfairly to disadvantage both the country’s traditional economic pillars. The tariff and its ongoing trade war with China, however, will bring the global economy moved from the ideal and preferable scenarios towards the worst and darkest.

Major finance agency on its latest forecast said growth is set to fall to its slowest rate since the financial crisis this year, as it warned that the self-inflicted wounds of the US – China’s trade war had created a precarious economic situation.

While the trade war with China continues, Trump on Monday tweets, said he was ordering new tariffs on steel and aluminum from Brazil and Argentina to counter what he called a “massive devaluation of their currencies” at the expense of American farmers. The unexpected announcement upends the Latin American countries’ 2018 agreement with Trump to accept quotas on their shipments to the US instead of the import taxes.

Hours later, Robert E. Lighthizer, the president’s chief trade negotiator, released the results of a five-month investigation that concluded a French digital services tax discriminated against American Internet companies and should be met with tariffs of up to 100 percent on US$2.4 billion in products such as cheese, yogurt, sparkling wine, and makeup.

The proposal, which awaits a presidential decision, threatens to intensify simmering transatlantic trade friction, coming with Trump already accusing European carmakers of enjoying government protection from American competition.

“The French tax discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies,” Lighthizer said in a statement.

Monday’s protectionist flurry came as the president’s “America First” trade policy remains bogged down at the negotiating table and on Capitol Hill less than a year before the 2020 presidential election.

The fallout from the president’s renewed embrace of tariffs could cloud prospects for future or ongoing talks with countries in Asia and Europe. The administration’s action against France may be designed to create leverage for just such a negotiation. At issue is a 3 percent tax France introduced last year, which the administration says would unfairly target America’s digital economy icons.

Administration officials worry that the French tax could set a precedent for other countries. Lighthizer said he may open investigations into similar taxes in Austria, Italy, and Turkey.

“The whole point of it is to start a negotiation,” said Reinsch, a former Commerce Department official. “Because imposing a penalty doesn’t solve the problem.”

It’s not clear what “rules,” the president thinks Brazil or Argentina has violated. Brazil’s economy over the past year has barely grown, advancing at an annual rate of just 0.2 percent. The Brazilian central bank has cut interest rates three times since August in a bid to jump-start growth. As a consequence, the Brazilian currency, the real, has fallen about 8 percent this year against the dollar.

Argentina, meanwhile, is mired in a financial crisis that has left its economy smaller today than it was four years ago and resulted in a humiliating rescue by the International Monetary Fund (IMF). As investors fled, the currency this year lost 37 percent of its value. The Argentine central bank has raised its main interest rate to 63 percent in a bid to halt the decline.

On global scale, the world economy is projected to grow by a decade-low 2.9 percent this year and the next by Organisation for Economic Cooperation and Development (OECD) last month, trimming its 2020 forecast from an estimate of 3.0 percent in September.

Offering meager consolation, the Paris-based policy forum forecast growth would edge up to 3.0 percent in 2021, but only if a myriad of risks ranging from trade wars to an unexpectedly sharp Chinese slowdown is contained.

While the IMF in his latest outlook on October said the world economy will grow only 3 percent in 2019, down from 3.8 percent as recently as 2017 and 0.3 percentage points below its equivalent forecast six months ago. This is the slowest rate of expansion since the global recession of 2009.

The trade wars started in early 2018 by the US will leave global output 0.8 percent lower in 2020 than it could have been, had more internationalist policies been followed, the IMF said. If the world’s central banks had not acted quickly to loosen monetary policy, the output would have been a further 0.5 percent weaker.

The IMF predicted that the global economy would improve next year, growing at a rate of 3.4 percent, but this forecast is entirely dependent on recoveries in highly-stressed economies such as Turkey, Argentina and Iran and improvements in global weak spots such as Mexico, Brazil, and Russia.

In early June, the World Bank estimated the world economy would expand by only 2.6 percent. It has also warned that trade wars could wipe $455 billion off the world’s gross domestic product in 2020. So, what the global tariff war effects now is a potentially fatal fall into long-term stagnation.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com