Valdis Dombrovskis, Vice-President for the Euro, says Europe needs to protect itself against the threat of a global trade war:
“European economic activity remains solid with 2.1% GDP growth forecast for the euro area and the EU28 this year.
Nevertheless, the downward revision of GDP growth since May shows that an unfavourable external environment, such as growing trade tensions with the US, can dampen confidence and take a toll on economic expansion.
The growing external risks are yet another reminder of the need to strengthen the resilience of our individual economies and the euro area as a whole.”
EC cuts growth forecasts as trade war looms
Newsflash: The European Commission has cut its growth forecast for Europe this year, and blamed the rising threat of a trade war.
The EC now expects the eurozone and the EU to both only grow by 2.1% this year, down from 2.3% predicted three months ago. It reckons that Europe’s economic momentum has “moderated” after more than a year of strong growth.
It has slashed its forecast for German growth to 1.9% in 2018 (down from 2.3%) and also 1.9% in 2019 (down from 2.1%).
Britain is now expected to only grow by 1.3% this year (down from 1.5% in the EC’s spring forecasts) and by 1.2% in 2019 (unchanged).
That would make the UK the joint-slowest growing EU economy this year, along with Italy.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, says the threat of a trade war is hurting Europe’s economy.
“Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall. The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices.
Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk.
Trade wars produce no winners, only casualties.”
China: We will take countermeasures to US tariffs
Over in Beijing, China has hit out at America’s threat to impose tariffs on $200bn of its goods — and called on US companies to help.
The Ministry of Commerce spokesman Gao Feng warned that the escalating trade dispute between the two countries would hurt the global economy, adding:
“China resolutely opposes such behaviour and will have to take the necessary countermeasures.
However, we still don’t know exactly how China plans to hit back (as it doesn’t import enough from America to simply impose reciprocal tariffs).
Gao suggested that US firms with operations in China could put pressure on the White House to change course. He cited chipmaker Qualcomm and carmakers Ford, BMW and Tesla as examples of companies who have recently increased production capacity in China.
South Korea growth forecast hit by trade worries
Trade war fears have forced South Korea’s central bank to cut its growth forecast today.
The Bank of Korea has trimmed its growth outlook for South Korea to 2.9%, from 3%.
Bank of Korea Governor Lee Ju-yeol told reporters that the tit-for-tat tariffs imposed between America and other nations are a serious concern. He added that South Korean exports could be hit (echoing the trade ministry’s earlier warning).
Ju-yeol said (via Associated Press):
“Uncertainties in growth path are higher than ever and the major source of the uncertainties is global trade conflicts.
At first we thought the trade conflicts among major economies would not grow further, but as they deepen day by day, now it’s very difficult to tell where they’re headed to.”
Stephen Roach, a senior fellow at Yale University, also thinks America will lose out if it keeps slapping tariffs on Chinese imports.
He told CNBC this morning that trade wars are not easy to win (something Donald Trump claimed earlier this year).
They’re easy to lose, and the U.S. is on track to lose this trade war.
“This is live ammunition. This is not just rhetorical discussion any more,.
“We’re in the early stages of fighting skirmishes in a real, live trade war. The question is, how far does it go? And how significant will the ammunition be in the future?”
Trade wars: What the experts say
Wayne McCurrie of South Africa’s First National Bank fears that global growth will be damaged if the US-China trade dispute keeps escalating.
Tom Rafferty of the Economist Intelligence Unit points out that China could cushion the blow of tariffs if it allows its currency to weaken.
Naeem Aslam of City firm Think Markets expects Beijing to retaliate soon:
Trump is serious about punishing China, he is picking up the areas where it would hurt the most. Although, market participants still aren’t factoring in a full trade war. The hope is that China and US would be able to resolve this matter through bilateral agreement. But uncertainty around this matter has anchored up. The sad aspect is none of the parties are ready to throw in the towel yet which makes me think that there is no resolution in insight yet. Beijing has threatened for retaliation action against the current measures.
Therefore, over the coming days, I would expect a tit-for-tat reaction from China-unless the bilateral discussions resume between the two parties. The alarming area is if China chooses to go after the multinational companies which are operating in China. Certainly, that is the area where it would create more wounds. We think that the odds are high that China would specifically pick on US firms or at least it would shift the grounds in such a way that other foreign firms would have more privileges being in China on relative perspective. After all, China isn’t going to sit on its hand and see its GDP dragging lower by another 0.2% if the new tariffs become effective.
Hyundai: Trade war will cost US jobs
The car industry is also worried by America’s belligerent stance on trade.
The labour union of South Korean manufacturer Hyundai warned that tens of thousands of US jobs could be lost if China and the US don’t step back from a trade war.
Hyundai employs around 20,000 workers at a factory in Alabama, and also operates plants in China, India, Russia, Turkey, Brazil, and the Czech Republic, as well as in South Korea.
In a statement, the company’s union warned that overseas factory could be the first to close if sales are hit.
“If South Korean car exports to the U.S. get blocked and hurt sales, the U.S. factory in Alabama that went into operation in May 2005 could be the first one to be shut down, putting some 20,000 American workers at risk of layoffs.
The South Korean trade ministry is worried that demand for its ‘intermediary goods’ will be hurt, if America imposes tariffs on $200bn of Chinese goods.
These are products which are assembled to create a final product (for example, memory chips and hard drives used to build a computer).
The ministry explained:
As Chinese electronics, computers and communications equipment were included in the additional list of tariffs, Korean companies are worried their exports of intermediary goods used in those items could decrease if the tariffs are imposed.
The agenda: Trade war fears mount
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
City traders will be trudging wearily to their desks this morning after last night’s gripping World Cup drama, and worrying about the impact of a US-China trade war.
Donald Trump’s threat to impose tariffs on an extra $200bn of Chinese imports is causing rising anxiety.
South Korea’s government has weighed in this morning, warning that its exports could be hurt by the escalating dispute between Washington and Beijing.
South Korea is a major producer of technological products — such as components used in electrical devices, computers and mobile phones. It fears that demand for these exports could slide if the global trade systems gums up.
Deputy Minister for Trade Kang Sung-chun told Reuters that Seoul is watching the situation closely:
“We have detailed analysis (on which products will be affected by the U.S.-China trade war),”
“The impact will be mixed. There will be both positive and negative effects. Some Korean exports could replace Chinese goods to be slapped with tariffs, for example.
Global stock markets fell heavily yesterday after the US Trade Representative outlined plans for a 10% tariff on other 6,000 individual Chinese imports (everything from meat and vegetables to stamps and baseball mitts).
The FTSE 100 lost 1.3%, or 100 points, while the Dow Jones industrial average ended down 219 points or 0.9%.
Shares are rising a little this morning, but any fresh retaliations between the two sides could undermine the rally.
Also coming up today
The pound could be lively as the UK government publishes its eagerly-awaited Brexit white paper, outlining its preferred future relationship with the EU.
The Bank of England is publishing a new assessment of credit conditions, and we also get the latest US inflation data.
- 9.30am BST: The Bank of England credit conditions and bank liabilities survey
- 1.30pm BST: US inflation data for June