Latest US-China tensions could be the trade version of 'the end

  • As the U.S.-China trade dispute hits another level and hammers financial markets, the bigger casualty over the longer term could be the globalization trend that has developed over the past quarter century or so.To get more china breaking news, you can visit shine news official website.

    Only the European Union exports more good to the U.S. than China, making the impact of a prolonged tit-for-tat tariff potentially severe. American businesses have begun looking for alternative markets from which to get the goods they had been buying from China, pushing imports from China down 12.2% year to date, according to government data released Friday.

    The trend threatens fundamental change to the interconnected global economy, said Neil Shearing, group chief economist at Capital Economics.Shearing said that the move for the U.S. to levy tariffs on all Chinese imports, which President Donald Trump announced last week, shouldn’t come as a surprise, but it still carries broad implications that may not be fully appreciated.“Lingering in the background is a more fundamental concern – namely that we may be witnessing the end of globalization,” Shearing said in a note to clients.

    “If so, the rapid increase in cross-border movement of goods, services, capital and people that has been the defining feature of the global economy over the past two decades may be about to reverse – with macroeconomic implications that would extend well beyond the narrow impact of tit-for-tat tariffs,” he said.

    Foreign direct investment in the U.S. was $410.7 billion in the first quarter, up marginally from the end of 2018 but down 57% from the peak four years ago.Among the implications for more deterioration in the global picture that Shearing cites are the “disintegration of the rules-based system” that has governed international commerce since the end of the World War II, and a potential “Balkanization” of the world economy as the U.S. and China develop their own standards, tech platforms and payment systems.

    “It’s too soon to say exactly how events will pan out, but this casts the escalation in the US-China trade war over the past year in an altogether more ominous light. We may be witnessing the end of the world as we know it,” he wrote.Shearing is not alone in his concern for how globally destructive the U.S.-China schism could be.

    Progressive economist Paul Krugman, a persistent Trump critic, compared the situation to the events that kicked off World War I, with the Trump tariff salvo “the event that tripped an uneasy situation into all-out trade war.And Deutsche Bank strategist Parag Thatte noted that this is the fourth time that Trump has used a stock market peak to launch a trade-related Twitter offensive against China.

    Markets have recoiled over the developments, with stocks Thursday staging a more than 500-point reversal after Trump announced the expanded tariffs, then tumbling around 900 points by late-day Monday after China saw an overnight currency devaluation.Whether the current events detonate a full-scale trade and currency war that poses an existential threat to globalization remains to be seen.

    “You want to think of it as something more than a pinprick, a little bit of damage, a little regression of the global trend that we’ve been seeing for many decades. But it has the potential to get worse,” said Alan Blinder, a Princeton University economist. “We’re not yet in a full-scale trade war, we’re certainly not anywhere close to a full-scale currency war of competitive devaluations. But those two things are no longer unthinkable, and that’s got the markets spooked.”

    Trump himself has been a proponent of nationalism and used to chide some of his advisors — former National Economic Council director Gary Cohn, for one — as being globalists. The president has pushed an “America first” political agenda, with one specific goal being the reduction of the trade deficit with China, which was at $167 billion through the first half of the calendar year.

    Blinder said one negative scenario would see the U.S. start to become alienated from the rest of the trading world as it continues to levy tariffs not only on China but also on such traditional allies as Europe, Mexico and Canada.

    “One of the real fears for me as an American is this is not really shaping up as China vs. the West, it’s shaping up as the U.S. vs. everybody else,” he said. “I tend to think that the bad outcome is not that China gets disconnected from the rest of the world, it’s that the U.S. gets disconnected from the rest of the world. That’s the doomsday scenario, and that’s just dumb.