“The Supreme Art of War is to Subdue the Enemy Without Fighting” – By Sun Tzu

A looming trade war seems to be a new panic wave frenzying across the global markets. The Trump administration is busy re-negotiating trade norms with almost every country who has trade surplus with the US. The govt. is in the process of implementing new trade policies and is indirectly forcing the whole world towards trade protectionism. While, the Trump has been pretty vocal and supportive of trade protectionism – we in this note try to assess the real reason and timing for initiating trade war and probable trade impact on few emerging economies and commodities.

TRADE WAR: The Donald Trump administration kick-started global trade war by imposing global tariff hikes on Steel (25%) & Aluminum (10%) forcing its biggest trading partner China to retaliate by imposing tariff hikes on range of products imported from US. Since 2008 data indicates that countries topping the list of trade protectionism are the US (initiating over 1200 measures), India (~730), Russia (~610) and Argentina (~480). The number of anti-dumping initiations also rose to a high of 360 in 2017, nearly double the count seen in 2011. US exports to China are equivalent to less than 1% of US gross domestic product and only 8% of total US exports. While, China’s exports to the US account for nearly 20% of its total exports and about 4% of its GDP.

no of discriminatory interventions implemented
effect of the discriminatory interventions









Since the beginning of 2017, the Trump administration has taken aggressive actions against China (107), Canada (86), India (72), Germany (74), France (64) and Italy (57). The sectors impacted by such measures include Iron & Steel, Fabricated Metal Products, Food Products, Electrical Energy and Plastic Products. While, the actions from US govt. resonates with the election slogan “Buy American and Hire American”, US administration is expected to be more aggressive in 2018-19. In the past two years, China ranks high on the list of countries implementing harmful measures in these sectors (Metals, Machineries, Chemicals and Textiles). The restrictions have largely been in the form of promoting their domestic industries through export subsidies, trade finance etc. China is also equally bearing the brunt of such actions, with the US implementing most of these measures. Broadly speaking, there is sufficient evidence of G20 countries taking harmful trade actions and thereby indirectly encouraging trade protectionism across economies.


As they say “Timing is everything in politics”. The liberalization of trade barriers in past 60-70 years has certainly resulted in positive trade openness and has brought economic gains – but mostly to advanced economies. However, during late 1990s and the subsequent decades, the equilibrium shifted considerably towards developing and emerging markets especially Asia. The share of developing economies in global exports increased from 15% in late 1980s to 41% in 2016. While, the advanced economies lost heavily with their share declining sharply from 69% to 51%. Likewise, the share of GDP from Developing Asia has doubled to 29% by 2017 from 2003. And for the advanced economies, it has declined sharply to 58% from a steady level of 76% in 2004. The narrowing growth trend between developed and developing economies and decline in number of Regional Trade Agreements (RTAs) is an indication of the de-globalization is already underway.

Antidumping initiations and Regional trade agreements
share in global gdp of developed, developing asia and developing others









The rising US inclination towards trade protectionism is mainly because of growing concern of global economic imbalance which would otherwise shrink the dominance of US in global markets. While, the future US economic growth still uncertain mainly due to tax cuts and increase in deficit spending – US is desperately trying to block as many holes in a sinking ship and aims to stay afloat. China on the other hand has cleverly used undervalued yuan to their benefit by creating a strong manufacturing base for itself. The decline in Chinese trade surplus has been seen as deceptive given that it has managed to spread its manufacturing base across world – the steady rise in outward Chinese FDI is one such example.

Overall, Trump regime is all geared to reform the tax packages by providing implicit subsidy for exports and tax on imports in form of Border Adjustment tax to narrow down the trade deficit. This shall result in strong flow of FDI and US Dollar would appreciate creating further problems for US and other economies via high currency fluctuation.


  1. US ECONOMY AND DOLLAR: If history is any indicator, the steel tariffs raised in 2002 by Bush administration, had negative impact on the economy. US gross domestic product declined by $30.4 million and lost about 200,000 jobs, about 13,000 of which were in raw steel-making. The trade war would also shoot up the inflation given the high cost of domestic raw materials and expensive labor. Trade war could boost inflation more than desired by Federal Reserve, who might justify the need to raise rates more aggressively than otherwise planned. On the other hand, if the tariffs result in job losses and the economy slows, the Fed might want to ease the pace of rate hikes as it would curtail the retail spending. On short-term, US dollar would strengthen given the rising US interest rates resulting in high dollar in-flow into US. The same can be witnessed by rising US bond yields. But once the impact of trade protectionism kick-in dollar would weaken and remain volatile as other countries retaliate with their respective trade tariff hikes.
  1. CHINA ECONOMY: Trade wars are never a win-win situation for any country. But as China aims to move away from investment driven economy to hi-tech manufacturing economy – “Made in China 2025” has identified 10 industries that the world’s second-biggest economy wants to become globally competitive in by 2025, and globally dominant in during this century. US has long been arguing about the tactics used by China to force them to transfer intellectual property such as industrial designs and patents, and that Chinese entities engage in widespread theft of US trade secrets. US fears that they won’t be able to compete with Chinese companies in advance manufacturing given the massive investment by state province and heavy subsidies to support the Made in China 2025 cause. While, China seems to be in advantageous position as compared to US, it still relies heavily on exports. Strict measures from US on Intellectual Property Rights and trade tariffs could bring China back to negotiation tables with US.
  1. COMMODITIES: Trade spat between US and China is bound to have great impact on commodity market as it threatens to disrupt the recovery in global commodity demand by curbing trade flows and hampering global economic growth. Trade protectionism has emerged as the top-most risk for commodity demand and prices in 2018 apart from geopolitical tensions. China which aims to slap tariff hike on 106 products including Soybean – the largest importer of soybean from US – is likely to impact US soybean farmers negatively. US farmers would be forced to shift their acreages towards Corn. While, Soybean trade flows would undergo drastic change with Brazil displacing US and taking over the role of largest exporter of soybean to China. Resultant impact would be increase in demand for fertilizers from Brazil and other Latin American countries exporting Soybean. While Trump temporarily exempted allies – including the EU, Canada, Mexico and South Korea – from the metals tariffs he has not indicated any back out on tariff suggested on Chinese products. Steel is the another commodity which could witness excess supply if trade protectionism sneaks in. US hikes import tariff rates on steel by 25% – expected steel exports to US could decline by 9-14mn MT. While, China is not the largest exporter of steel to US (US imports steel largely from Canada, Brazil, Mexico, Russia, Japan & S. Korea) it is likely to impact China’s steel industry indirectly. China is the world’s largest producer of steel accounting 51% of global production and ranks 11th in terms of steel exports to US. Any decline in imports from US would flood the market with excess steel supply thereby impacting the Iron ore prices negatively. The already existing steel supply glut could further dampen the prices of both Steel and Iron ore respectively in medium term. Crude Oil is another commodity where trade war could be a potential spoiler. Keeping aside the geo-political and speculative interest, historically trade war has always dampened the economic growth. Currently Oil prices are rallying due to strong global oil demand; Supply cuts from OPEC and increase in speculation from hedge funds. But any upset to fundamental demand for Oil could lead to price correction in no time.
  1. SHIPPING: A looming trade war is equally bad for shipping industry as countries impose restrictions on each other in order to harm each other’s trade. A tit-for-tat action between US and China would force market to realign its trade routes. Till the new trade routes emerge we could see volatility in freight rates as existing trade routes could come under severe pressure. We believe new trade routes like LATAM to Asia could result in high freight rates.
Sachin Nimkar
Market Intelligence, Swiss Singapore Overseas Enterprises
Published by Swiss Singapore Overseas Enterprises PTE Ltd. The material contained herein has been obtained from sources believed to be reliable but is not necessarily complete and cannot be guaranteed. Any opinion expressed is subject to change without notice. All information is for the private use of the person to whom it is provided without any liability whatsoever on the part of Swiss Singapore Overseas Enterprises PTE Ltd. or any associated company or any employee thereof.


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