The imminent move by the US government to harmonise tariffs on more than 2.5 million imported products represents a massive intervention in the current structure of international trade. The aim is to create a level playing field: If Thailand, for example, imposes a 20% tariff on US imports, US tariffs on Thai products will have to reach the same level. A fair principle – at least on paper.
But what does this mean in practical terms for the world’s trade and financial markets?
Asia: From Privileged Growth Path to Zone of Uncertainty
Many Asian countries have enjoyed an unofficial ‘tariff privilege’ for decades. The developed world, led by the US, accepted sometimes much higher tariffs from their trading partners in order to promote their economic development. This was in the spirit of the global division of labour and helped emerging markets to catch up economically.
However, this practice is now being questioned. In many cases, the equalisation of tariff rates means a de facto increase in import duties for Asian products in the US – with noticeable consequences:
- Export-oriented companies in countries such as Vietnam, Thailand and India could lose market share.
- Investment decisions are at a standstill – uncertainty is poison for capital inflows.
- Consumer behaviour may change: Resentment against the US could manifest itself in boycotts of everything from products to tourist destinations.
The first signs are already visible. Canadians are cancelling about 20% of their trips to the US, while Americans are continuing to travel to Canada – a small but symbolic trend.
China: Keep Calm, Strengthen Domestic Market
While Europe and Canada tend to resist the new US trade doctrine, China is surprisingly calm. Instead of entering a spiral of escalation, the People’s Republic is focusing more on its domestic market. Although it suffers from structural weaknesses such as a struggling property sector and a weak labour market for young people, it still has considerable growth potential.
China’s geopolitical positioning is also shrewd: as long as US economic pressure does not directly affect China’s core interests, it will exercise restraint. Strategically, it is taking a long-term view, knowing that the political constellations in the US are volatile. Xi Jinping, on the other hand, is here to stay.
At the same time, China is becoming more attractive to international investment capital: technology companies such as Alibaba have made massive gains this year, while Western tech stocks have come under pressure. A comparison with the “Magnificent 7” from the US shows this: The growth dynamic is shifting.
