Just the fear of an escalation in the trade war is pushing investors to dump stocks and rush for the safety of US government securities.

There was a good reason for major stock exchanges around the world to shed value on Friday following US President Donald Trump’s announcement that he might impose tariffs on more Chinese goods. 

The International Monetary Fund (IMF) revised its outlook for global economic growth twice in the past couple of months - and intensification in a trade war between the world’s two largest economies is only going to make things more volatile. 

Trump has threatened to extend tariffs to almost all Chinese goods that the US imports. 

He says Beijing has not honoured its end of the deal to buy more American agricultural products and to stop the sale of the dangerous synthetic drug fentanyl in the US market (Fentanyl was responsible for more than 28,000 overdose deaths in 2017).

The new tariffs come into force starting September and have raised the possibility of retaliation from China. They will cover $300 billion worth of Chinese goods, on top of what has already been imposed on $250 billion of imports. 

US and Chinese officials have met on several occasions since January to end the trade friction that stems from Trump’s concern about his country’s large trade deficit with China. 

But the tariffs on goods ranging from garments, toys to smartphones would end up making things more expensive for the average American consumer. 

Renewed tensions don’t bode well for global trade growth, which in the first three months of this year rose at its slowest pace since 2012. 

Risk-averse investors are already careful when it comes to lending to debt-laden emerging markets such as Argentina. Fear of economic slowdown sends investors in search of safer havens - most notably the US Treasury bond, as was seen on Friday. 

Central banks in the US, European Union, Korea, Russia and Turkey have all cut lending rates to boost spending and investment in hopes of supporting growth.

In Germany, Europe’s largest economy, the slowdown has trickled down from export-oriented sectors to consumer spending, adding to worries about the global economic outlook.

Unsettled differences 

In June 2018, Trump slapped tariffs on $50 billion worth of imports from China, saying Beijing’s economic policies were killing American jobs.

The US trade gap with China rose to more than $419 billion in 2018, meaning Americans use more Chinese products than vice versa.

For years, the US has accused Beijing of keeping its currency, the renminbi, artificially depreciated against the greenback to support its exports. China denies the allegation.

The Chinese government faces criticism for subsidising state-run companies and forcing multinationals to share patents and technology against access to its vast market.

The dominance of Chinese manufacturers in sectors such as solar panels and high-speed rail, once the domain of Western firms, has further heightened tensions.

The US wants Beijing to make it easier for American farm products to be imported, to remove trade barriers, stop subsidies, and provide a level playing field to foreign firms.

The rise of Chinese tech firms such as Huawei and its dominance of the upcoming 5G networks have also become a sticking point in the talks.

Washington and its allies allege that Beijing can use Chinese telecom infrastructure to spy on customers.

The dispute has already affected multinational companies as they rely on cross-border trade to make modern gadgets and products.

A slowdown in China, perpetuated by the trade dispute, could spell trouble for companies in the US, especially in the high-stakes technology sector. 

Semiconductor makers such as Qualcomm and Intel could see a decline in exports to China.

Besides unnerving markets, the trade war could lead to a wave of protectionist policies, undermining the easy exchange of goods and services - a mainstay of the modern economic order.

Source: TRT World