US tariffs on China show decline of America power

Will this White House have any friends left by the time President Trump is finished? Not content with picking a fight with his closest neighbours over the North Atlantic Free Trade Agreement (Nafta), the US President moved onto introducing tariffs on imported steel and aluminium and then, on Thursday night, announced further tariffs on Chinese imports worth $60bn.

The Chinese response has, by comparison, been fairly measured. It has imposed tariffs of its own on US imports worth $3billion but this is a drop in the ocean given US imports to China totalled $115.6bn in 2016.

The warning from Mr Trump that this was “the first of many” trade actions should worry everyone. But it should worry US consumers and investors more than anyone else.

Shutting itself off from the global economy is more likely to end up as an act of self-harm than anything else. Slapping tariffs on Chinese imports will make them more expensive but that won’t necessarily hurt Chinese companies, whereas the ability of China to do real harm to the US economy cannot be overstated.

It’s no small irony that the Chinese are now able to present themselves as the defenders of global free trade rather than the US.

WTO rules

In fairness, the US has always been a protectionist economy. As much as President Trump wants to rail against World Trade Organisation (WTO) rules that he claims are unfair to US firms, the world knows differently. Just ask any African nation how unfair WTO rules are, or how well the US plays with others when it comes to trade.

The imposition of tariffs like the ones imposed in recent weeks by the White House should be viewed as a sign of something a little darker and more sinister for the US.

Last year, the US not-for-profit business membership and research group, the Conference Board, estimated the Chinese economy’s contribution to the global economy would overtake that of the US in importance.

This is not a new forecast by any means. But most forecasts were for China to overtake the US in around 15 years or so. Not according to the Conference Board. It says 2018, yes this year, will be the year China overtakes the US.

In 1970, the US contributed 21.2 per cent of total global economic output. That remained pretty constant until 2000. Every year since except one, America’s percentage of the world’s economic output has declined.

In 2015, the US contributed 16.7 per cent of the world’s economy. By 2025, this is expected to fall to 14.9 per cent.

In 1970, China was responsible for a mere 4.1 per cent of global economic output. This rose to 15.6 per cent in 2015. In 2025, China’s contribution to the global economy is projected to be 17.2 per cent. Since 1990, China’s percentage of total global output has risen every year bar one.

Declining US influence

Unsurprisingly, last Friday global markets reacted to the possibility of a trade war negatively. But the reality is that, for Asia, a trade war with the US is less of a problem than it is for the West.

China is not only the fastest growing economy in the world, it is the fastest growing consumer market in the world.

It is this fear of being overtaken by China that helped President Trump get elected in the first place.

The US is feeling the pain of its declining influence amid a more competitive global trading environment. Yet it was Nixon who went to China in the first place, so it only has itself to blame for raising up this goliath of a global competitor.

As a result, rather than freeze out China, President Trump risks the US being left out in the Cold instead.

For nearly 20 years, political and economic observers have talked of a looming new world order in which China is the dominant economic and political power. The imposition of US trade tariffs may suggest we are closer to that new world order than we may have realised.

To find out how INFINOX Capital can help you reach your financial goals, visit www.infinox.com.

Let's block ads! (Why?)