All Financial Wisdom
The World Bank Warns: the Current Global Trade War Could Be Catastrophic
What was once considered “tensions” between the United States and China have now escalated to a full-scale commercial war. Each week the war gets worse, and day after day, we are witnessing both economic powers attack each other with new, large and painful tariffs. This can’t end well, nor does it bode well for either country, let alone the rest of the planet. In fact, the World Bank has published a report highlighting the great threat posed by this conflict to the global economy.
The question that we must ask ourselves at this moment is: Why are we just now witnessing a considerable intensification of a commercial conflict that was already several months old?
As you all know, China has traditionally been the main supporter of the North Korean regime internationally. It is a role that has traditionally been played by the coincidence of communism in the DNA of their respective political systems, and that has had its economic reflection in economic aid and bilateral agreements (almost singlehandedly) with North Korea. The North Korean regime, apart from its natural dictatorial secrecy, has also remained largely isolated in the economic terrain of the rest of the world, where the sanctions of US foreign policy have largely met its objectives.
The traditional confrontation between the North Korean regime and the United States has dissipated like fog when the wind blows. At the last summit in Singapore, surprisingly, relations between Washington and Pyongyang not only normalized and a commitment to denuclearization of the Korean peninsula was achieved, but their leaders even invited each other to visit their respective countries.
Trump even said that there is “Trust” between him and the North Korean leader – an unimaginable 180 degree turn from just a few weeks ago, when they continued to exchange nuclear threats and personal insults.
Not everything has suddenly turned sweet pink in Trumpshington
Welcome be the reduction of tension between the Trump administration and that of Kim Jong Un. We can all sleep more calmly without fearing that at any moment, ballistic missiles will be flying over our heads. However, lets not jump the gun; we must wait for the final outcome of this whole process, beyond the passion statements of the moment. There are still latent risks involved.
But there has been collateral damage derived from the blessed cessation of hostilities in the North American-North American conflict, which is also very relevant to the world situation in the current context. The fact of the matter is that now China no longer needs the United States in its traditional role as a natural interlocutor between the US and North Korea.
The relevant fact is that, now, the Trump administration can now afford, geopolitically and economically , to move to another stage in its commercial conflict with the red giant. It has a free hand to address new confrontation strategies and new tariffs with China. And don’t forget that this conflict has been one of the most traditional (and electoral) ambitions and policies of President Trump.
The World Bank warns: this trade conflict can severely damage the global economy
Indeed, a few days before the intensification of commercial hostilities, the World Bank warned that the already appreciable Chinese-American commercial squabbles ran the risk of damaging global economic growth. Moreover, the agency even put a level of graduation to the possible damage it could cause: it said that the economic damage could be of the order that shook the world’s economies without mercy in 2008 after the fateful detonating of Lehman Brothers.
The Bank also stresses that this commercial conflict is not merely a bilateral one between the two main economic powers of the planet, but, on the contrary, it is a multilateral conflict with its epicenter in the United States. The real war is that Trump is against everyone.
But what the World Bank is really warning against is no longer just the economic nationalism of President Trump himself, but the generalized rise that this socioeconomic current is taking in multiple economies of the planet. Because do not forget that nationalism was something contagious in the historical past, and do not doubt that it can again be so: it is very tribal and instinctive to imitate one’s neighbors in defending your own.
Especially when you are feeling that you’re getting the short end of the stick – keeping our markets open to foreign competition, while we take tariffs to our products and companies everywhere. And there is no doubt that we have to defend our own in an ultra-competitive world and one full of economic threats, but the fact is that economic nationalism has its limits.
Truly, it can be argued that Trump has only reacted to a profoundly unbalanced economic balance with China that stems from decades of trade. There are many arguments to justify that we must correct these imbalances. But one can not expect to rebalance in one year the accumulated imbalances of decades of uncontrolled globalization.
In addition, the Trump administration has opted to aggressively attack the red giant instead of agreeing to gradually correct the trade imbalances. But as we pointed out before, Trump has done the same with other economic zones, opting to raise the commercial war rhetoric and threaten equally severe tariffs with traditional allies such as Europe.
And the issue is that economic nationalism understands only agitated exacerbated passions, and everything fits in the ideological tailor box of “you have to defend your own.”
The root of the problem is at the same time the essence of our freedom, and has the form of an electoral ballot
Indeed, the main risk is that we may be witnessing the self-destruction of the current socio-economic system (at least as we know it) from within. Ballot boxes are being stuffed with discontent votes across the globe as populism and nationalism takes hold.
The underlying problem is that those voters do not see another way out of their bleak economic realities other than adhering to easy recipes for a situation that is much more complex. At least much more complex than levying tariffs on any and everyone.
The solution is not to cut the flowers, but rather, to plant only the number that was necessary and sustainable, and not to let the gardeners roam freely by relocating bulbs beyond the seas, pretending to keep the roots on national soil. It was evident that the model was not going to work if no one laid down rules of the game to make it sustainable; however, this has been anarchic, massive and without order or agreement.
Politics is a merry-go-round that does not get us anywhere.