Opinions Joost Derks
What if the trade war really gets out of hand?
The ongoing trade war between the United States and China dominates the financial headlines today. The struggle also influences the export opportunities of the Netherlands in all kinds of ways.
The trade war between the countries is being stirred up by US President Donald Trump. On Friday, August 23, he announced that tariffs on $550 billion worth of Chinese goods would be increased by 1% from October 5. This measure follows a package of other rate increases. China previously announced an import tariff for all kinds of American goods as a counter-measure. Although the 2 countries are not important export destinations and are located thousands of kilometers from the Netherlands, the trade conflict does have an impact on the prospects for agricultural companies.
The trade war is hampering the growth of the US economy. Business there is spending more money on goods from China, while Trump's unpredictable actions are causing uncertainty in the financial sector. In the first half of the year, economic growth in the United States was still above 3%. The Bloomberg poll now shows that economists are forecasting growth of less than 2% in the current quarter. About 33% of the respondents think that within 1 year a recession originates in the United States. And when America sneezes, Europe catches a cold. Consider, for example, the way in which the American credit crisis turned into a European debt crisis in 2008.
Watch out for recession
A slowdown in economic growth in Europe is bad news for trade. It is not certain that there will be a recession in the United States. The US central bank (Federal Reserve) recently cut interest rates slightly to give the economy a boost. Jerome Powell, the bank's chairman, said that he sees no reason for another interest rate move for the time being. He repeated this view at the end of August. That was not appreciated by Trump, who questioned whether Powell is a greater enemy of the US economy than Chinese Prime Minister Xi Jinping.
Trump would like to see Powell cut interest rates significantly. This gives the economy a boost, while the dollar loses ground. Financial parties then look for currencies with more attractive interest rates (just like various savers are constantly looking for the highest interest rates). The lower dollar improves the competitiveness of the US business community. The depreciation of the dollar usually leads to a rise in currencies in emerging countries. That is a disadvantage for all companies that import from Ethiopia, Kenya and Colombia. Those who compete with companies from dollar countries actually benefit. In anticipation of more war language, it can do no harm to map out the risks and opportunities that will arise in the foreign exchange market if the trade war flares up further.
Joost Derks
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