Don’t Panic

After the United States government imposed $34 billion in tariffs on Chinese imports and Beijing announced countermeasures of equal magnitude, fear of a heightening trade war has intensified. Given the importance of the nations involved, an escalation of the conflict could affect global economic growth.

Copper has been one of the metals adversely affected by the uncertainty, but oil – we in Chile are net importers of this commodity – has also seen a drop in value.* Consequently, while an increase in commercial tensions could have repercussions on the Chilean economy, mainly due to lower global growth and falling prices for copper, the drop in oil prices would mitigate those unfavorable external winds. The net effect of the trade war is, however, negative.

On the other hand, according to the Brookings Institution, tariffs must reach approximately 40 percent and be of a general nature to trigger a global recession. For now, the principals in this conflict have imposed 25 percent tariffs in most cases and have directed them at specific products. (Donald Trump, for example, levied 25 percent tariffs on imported steel.) So the worst-case scenario still seems far off.

It is also not clear that the conflict is permanent. Trump could choose to soften his protectionist policies if these result in job losses in the U.S. — which could occur, for example, in industries that use steel as a raw material — or if future negotiations with China are productive. Also, in case Trump decides to hold firm in his position, the situation could reverse with the election of a different candidate in the 2020 presidential elections.

*Editor’s note: A net importer is a country that imports more than it exports.