Renewed trade tensions with China could threaten America’s ‘Goldilocks economy’

With the U.S. economy doing surprisingly well and the stock market hitting record highs, many investors are calling what’s going on. “Goldilocks economy”. The main concern now is geopolitical, with the potential for the conflict between Israel and Hamas to spread across the Middle East.

However, my view is that there is also a risk that global trade tensions with China will be overlooked.

One source of tension is that Chinese leaders are expanding the country’s manufacturing and export capacity to offset the current economic downturn. This is happening as the European Union is considering. tariff increase On auto imports, carbon-intensive imports, and when relations with China are likely to become an issue in the U.S. presidential election.

On the surface, this development may seem unlikely, given that tensions between the United States and China eased late last year.President Biden and President Xi have reached an agreement. resume direct military talks Former House Speaker Nancy Pelosi was frozen after visiting Taiwan in 2022. first meeting It was held in early January.

Tensions between the two countries have also eased on the trade front. The Biden administration has stated that the U.S. policy goals areremove the riskThe goal is not to sever relations with China, but to improve relations with China.

So why might trade tensions flare up again?

According to The Economist, the main reason is that “China release A new wave of industrial hollowing is sweeping through the affluent world. The report estimates that between 1997 and 2011, approximately 1 million U.S. manufacturing workers lost their jobs to competition from China.This estimate appears low when considering total manufacturing job losses. Approximately 6 million then, and that helped Donald Trump was elected president in 2016.

The next wave is likely to be a mass export of Chinese cars, including an expanded share of electric vehicles. According to data from the Japan Automobile Manufacturers Association, China overtook Japan Last year, it became the world’s largest exporter of automobiles. According to Chinese customs authorities, that figure is 5.52 million units, an increase of more than 50% from a year ago, and one in three cars shipped is electric.

China’s largest producer BYD steals Tesla’s crown too With strong support from the Chinese government, it achieved the highest sales volume of all EV units.economist Note since its release “Made in China” policy In 2015, China “brazenly ignored global trade rules,” showering its automakers with benefits such as “cheap loans, equity injections, purchasing subsidies, and government contracts.”

Chinese electric car makers set their sights on We aim to become a major player internationally, with a particular focus on Europe. BYD currently sells five models in Europe and announced plans to build a new factory in Hungary.

European Commission President Ursula von der Leyen accused China is flooding global markets with prices that are “artificially kept low by state subsidies.” Meanwhile, an investigation began in September that suggests that China may impose punitive tariffs on EVs that exceed the current standard tariff rate of 10% for imported cars.

The Financial Times points out that: Global trade may also become fragmented That’s because the European Union is about to impose the world’s first tax on the emissions of carbon-intensive imports. These include steel, cement, iron, aluminum, fertilizers, etc. Taxation will begin in 2026, but the transition is already underway. This issue is of particular importance to the Chinese government, stop a country’s steel production A blast furnace that uses coal as fuel.

The United States has so far not been unduly affected by these developments. However, there is a possibility that there will be a change in China-US trade policy after the US presidential election.

In 2018, President Trump slapped him. customs duty It imposed 25% tariffs on $50 billion worth of Chinese goods, starting a series of tariff hikes that ultimately affected about $380 billion worth of imports. According to a study by tax foundation, American consumers paid $80 billion worth of additional fees on these products, one of the largest tax increases in decades. The study estimates that the Biden administration’s unchanged tariff hikes would reduce long-term economic growth by 0.2% and result in the loss of 166,000 jobs.

Rising trade uncertainty also contributed to the nearly 20% decline in the US stock market in the fourth quarter of 2018. According to a survey by the New York Fed, Reduced market capitalization of U.S.-listed companies by $1.7 trillioncompanies with direct exposure to China are feeling the biggest impact.

If the trade dispute escalates, this time it could be even more detrimental to the U.S. economy and the global economy for two reasons.

First, the tariff hikes that President Trump is telegraphing are broader than those in 2018-2019. He initially called for a flat 10% increase in tariffs. However, he upped the ante He said in a recent interview that he could impose tariffs on Chinese goods that could exceed 60%.

Second, if the European Union goes ahead with its plans to raise tariffs on cars and “dirty” imports, the trade war could become global.

Such an outcome would be a major threat to the world. Order after World War II It was devised by President Franklin D. Roosevelt to bring peace and prosperity to the world. This is a risk that investors cannot ignore.

Dr. Nicholas Sargen is an economic consultant with Fort Washington Investment Advisors and affiliated with the University of Virginia Darden School of Business. He has written three books including “.Investing in the Trump Era: How Economic Policy Impacts Financial Markets.”