America’s market disagreements with China and the European Union can lead to a fall in world trade, a decline in oil prices and, ultimately, a new international financial crisis.
The United States last week introduced a 25-percent duty on the import of a number of goods from China. Immediately came into force similar response to the Middle Kingdom. Previously, Donald Trump had introduced protective duties on goods from Canada, Mexico, the European Union and Russia, which also gave the US symmetrical answers. The Chinese Foreign Ministry has already accused America of unleashing the “largest trade war in the history of the economy.” And, according to a number of experts interviewed by Fontanka, it will deal a double blow to Russia, and not to China.
The two largest economies in the world in terms of GDP (Russia occupies only 12th place) began to clarify relations in early spring. The essence of the conflict of interests “Fontanka” already described. Recall that formally the reason was the investigation of the Office of the US Trade Representative, which established that China allegedly forces US companies to pay to enter their markets, and also invests in US firms to obtain strategically important technologies. The losses from this activity experts estimated at 600 billion dollars a year. And the US president decided to take action.
Until recently, the participants in the world market hoped that the parties would agree, but they themselves were preparing for the worst. Therefore, when on July 6th Trump still imposed protective duties on Chinese goods worth $ 34 billion and promised to extend them to all Chinese imports, amounting to $ 500 billion, and the Chinese took retaliatory measures (and even Russia agreed on additional charges for the import of goods from the United States ), the market did not react almost in any way.
On the eve of key US stock indexes finished trading in the “green” zone due to the appreciation of shares of high-tech and automotive sectors. In addition, the US Federal Reserve System recorded a smooth economic growth, improved labor market conditions and increased economic activity. As noted by Alexander Taraskin, a financial analyst at BCS Premier, the oil loses about 1% on Friday, but even the ruble during the trading session moved from a moderate decrease to a slight strengthening.
“If the United States and China suddenly abandoned the introduction of announced trade duties, it would be a shock to the markets. True, positive – one could expect explosive growth of the vast majority of stock indices, – said Alexei Korenev, an analyst at Finam. “Now all that has happened is completely within the framework of the built-up forecasts and theories, so expecting some noticeable price movement on trading floors is not worth it.”
At the same time, Evgeny Linchik, managing director of Sberbank Asset Management, noted that the reaction to the change in trade policy will not be lightning fast, everything will depend on the length of the confrontation.
“If it is short-term, the markets will be moderately adjusted (in part this has already happened), if it drags on or becomes large, we will definitely see a drop in stock markets,” Linchik said.
So, the situation will develop according to the unfavorable scenario for Russia, which was described in detail by Artem Deev, a leading analyst at Amarkets.
According to him, if the parties do not agree, more and more participants will be involved in the conflict, which will inevitably lead to a decrease in international commodity circulation, as well as a reduction in the cross-border movement of capital. In other words, the entire world economy will be in a state of full-fledged trade war.
“Lower economic recovery will result in a sharp decline in appetite for risky assets, which include all exchange contracts. Investors will begin to transfer capital to protective financial instruments, primarily American bonds, which will immediately trigger a liquidity outflow from emerging markets (including from Russia), ” Deyev said.
The drop in the growth rate of world GDP will lead to a decrease in demand for oil. Given that two weeks ago, OPEC countries agreed to increase production by at least 1 million barrels per day, the prospect of a global recession could trigger a collapse of the entire black gold market. So, according to Deyev, when this scenario is implemented, the Russian economy will receive a double blow.
Russia will not get a big trade benefit from the war between the United States and China. According to experts, the trade with the eastern neighbor may increase somewhat, but this increase is unlikely to be significant.
There is no hope for the lifting of US sanctions against Russia, as, Korenev said, they have nothing to do with trade wars, and Russia for the US is a completely insignificant market.
“Sanctions, at least formally, have three reasons: interference (in Washington’s opinion) in the process of elections in the United States and Europe, the actions of Russia in the NDP and the LNR and the annexation of the Crimea. The Trump administration has repeatedly confirmed that the lifting of sanctions from Russia is possible only in the event of any changes in these three areas. The volumes of mutual trade between Russia and the United States are so insignificant that due to trade wars with China, under no circumstances will America increase its trade with Russia – it simply does not affect them for anything, “Korenev said. view, sanctions against Russia exist in a different dimension than trade wars, so reducing the sanctions is unlikely, “the professor at the European University, Yulia Vymiatnina, agreed with her colleague. On the contrary, now we are talking about new sanctions. Against this backdrop, the scenario of the 1998 crisis may even be realized, as the Bank of America predicted recently: “Economic crises, firstly, have quite objective reasons that accumulate over the years and have an intrinsic and very clear motivation, second, characterized by a rather pronounced cyclicity – about once every 10-14 years. Is there any reason to believe that the necessary crisis has matured for the next crisis? Yes, to some extent there is, “Korenev said.
According to him, a number of processes are typical for the pre-crisis situation, and, most likely, on the horizon of several years the world economy will inevitably face obvious difficulties. And this can well serve as the beginning of trade wars between the US, China and the EU. “A trade war can cause a crisis. And with a fairly high probability, – said the analyst.
“But it often happens that a trigger, or the so-called” wingspan of a butterfly’s wing, “is some other event that may be much less significant than experts expect, but due to a number of circumstances it triggers a chain of negative factors on the “domino effect”. In the view of Julia Vymiatnina, the markets as a whole have already laid the risks of the trade war in their assessments. “Trade wars can accelerate the braking of the world economy, but if they do not develop into a decisive rejection of any trade between, for example, the US and China, then the slowdown in the economy will be moderate, and in the coming years, the world economy may collapse (and even likely) but it is not necessarily a crisis, “she said. But so far there is a hope that the parties by loud statements and documents only earn capital for the upcoming talks and all of them will be limited.” In my opinion, the exchange of mutual threats and half-measures and can last a long time, – believes Oksana Holodenko, an expert on international markets, “BCS Broker”. However, at the moment the “scenario of the apocalypse” seems unlikely. As the practice of political negotiations shows, many agreements are reached at the last moment.