How Trump’s trade war with China leaves the world in a crossfire

One of the world’s leading data providers released its latest economic report on Tuesday (14). However, the International Monetary Fund’s (IMF) middling forecast barely begins to capture the rollercoaster the global economy is on.

While the IMF was preparing its report, a flurry of events was already changing the scenario. New U.S. tariffs on imported lumber, furniture and kitchen cabinets, which are expected to raise the cost of home construction, took effect Tuesday. So did the initial round of higher port fees that China and the United States will impose on each other’s ships.

Tuesday’s turn in the trade wheel was just another click in a series of repercussions triggered by President Donald Trump’s pledge to shatter the global economic order. More will come.

Last week, Beijing decided to drastically tighten restrictions on the export of rare earth metals, materials essential for making semiconductors, cell phones, wind turbines and almost every other modern gadget. New restrictions on equipment needed to produce batteries for electric cars are also scheduled to come into force next month.

Trump’s initial fury subsided over the weekend after his response led to the sharpest decline in stocks since April, when the president’s initial barrage of tariffs was announced. Still, his threat to slap an additional 100% tariff on Chinese imports remained open.

“The US-China relationship is highly volatile,” said Richard Portes, a professor at London Business School. “You really don’t know what to expect from one day to the next, and that’s typical of the current administration.”

The heightened tension between the two economic superpowers is catching other countries — that is, almost every country — in the crossfire. China’s restrictions on metals and magnets, for example, would affect European automakers that use these materials and transport them across borders within Europe. And tariffs on Chinese-made ships even apply to non-Chinese shipping companies that call at American ports.

On Tuesday, the Chinese government stepped up retaliation by adding five American subsidiaries of South Korean shipping company Hanwha to its sanctions list, accusing the subsidiaries of “supporting and assisting” the United States in its actions in the shipbuilding industry.

Beijing and Washington are also essentially pressuring nations around the globe to take sides. Mexico, one of the world’s biggest buyers of Chinese cars, proposed a 50% tariff last month on these vehicles after heavy lobbying by the Trump administration.

India, for its part, has moved closer to China since the White House, angered by New Delhi’s continued purchase of Russian oil, imposed tariffs of up to 50% on Indian goods.

In August, Prime Minister Narendra Modi visited China for the first time in seven years to attend a security and economic conference — a public demonstration by the Indian leader that his country has many allies if the Trump administration continues to punish it.

Since Trump took office, changes in global trade policy have happened at both high speed and slow motion, reverberating in broad and unpredictable ways.

When Trump announced his plan to slap 50% tariffs on most steel and aluminum entering the United States, British steelmakers felt lucky. His government had already reached an agreement that its steel would be taxed at just half that amount — 25%.

But the mood in Britain soured considerably last week when the European Union announced its own set of punitive tariffs on steel imported into its 27-nation bloc. The policy was a blow to the British steel industry, which sends almost 80% of its exports to the EU.

Britain, however, was not the target of the policy—just a spectator to the moves of Beijing and Washington.

The EU’s 50% tariff was aimed at China, accused of dumping steel priced below the global market. The tax was also designed with the aim of putting the EU in a better negotiating position with the United States.

“The EU stands ready to work with like-minded countries with the aim of protecting their economies from global overcapacity,” the bloc’s executive arm said last week. “We will continue to explore ways to work together with the US.”

The protectionist push is also going viral, with Canada, Brazil and Mexico taking steps to protect their national steel mills.

Despite frequent shifts in trade policy, however, the global economy will remain highly integrated, said Lucrezia Reichlin, a professor at London Business School, even as the center of gravity shifts toward Asia and away from the West.

For now, growth is slowing in both the United States and China, while widespread unpredictability characterizes the short- and long-term outlook.

Portes summarized the dynamics between the world’s two largest economies: “China has stable, clear and determined objectives. The Trump administration changes from one day to the next, in its visions and policies.

“The degree of uncertainty is enormous,” he added, “and this has consequences for the global economy.”