María Alejandra Medina C. / @Alejandra_mdn

Now the trade war began: that was the message that several analysts read this Friday in China's response to the United States to impose tariffs on US $ 75,000 million in products from the United States. This is the reaction of the Asian giant to Donald Trump's plans on the purchase of Chinese goods.

The new rates will be in a range of 5 to 10%, over more than 5,000 US products, and will be applied in two phases: one from September 1 and another on December 15. These are the same dates that the Trump administration had chosen to apply 10% on an equivalent of US $ 300,000 million of Chinese products. On Friday, after the announcement of the Xi Jinping government, that tariff rose to 15%.

From September, there will be an additional charge of 5% on purchases of soy and US oil and in December 25% will be retaken on cars, in addition to 10% for specific cases. According to Bloomberg, adding the existing ones, there would be a total of up to 50% tariff on the vehicles of the North American country.

Trump, who has already imposed tariffs on US $ 250,000 million in imported goods (and whose tariff went from 25 to 30% in counterattack to the Chinese reaction on Friday), responded by stating that the United States does not "need" China and that his country would be Much better without them. Through Twitter, he "ordered" that national companies begin to look for alternatives, including the transfer of their factories to US soil.

For Sergio Olarte, principal economist at Scotibank in Colombia, so far both powers have been showing their teeth. However, he says, the most recent Chinese response is evidence that patience, pending negotiations that work, has run out. This, with effects not only for the two largest economies in the world, but with repercussions on a global scale.

Some global effects

The commercial war is somehow synonymous with uncertainty: it is not known when it will be resolved or if it will intensify further. In other words, it is not a trust factor for investment. At the same time, it allows us to anticipate that Chinese and American products that find entry barriers will seek, and could even flood, other markets.

The effect of what happened on Friday was not long in the markets. At the close of this edition, the Dow Jones index of the New York Stock Exchange fell 2.47% and the S&P500, 2.57%. The negative trend was also felt in the prices of commodities. Texas oil (WTI) fell 2.76% and the Brent reference (the one used by Colombia) did 1.44%.

Gold, on the other hand, soared above 2%. As he explained this week to The viewer Juan David Ballén, economic research manager of Casa de Bolsa, this precious metal is not a risky asset but, on the contrary, a “refuge”, that is, where the investment can go in times of uncertainty.

Alejandro Reyes, principal economist at BBVA Research in Colombia, said that commercial tensions not only affect the exchange between China and the United States, but with other partners in the chains. In the case of vehicles, for example, manufacturing requires parts imported from other countries. India or Mexico may be on that list of affected suppliers.

Olarte, on the other hand, believes that in the medium term we will see problems in international trade and a slowdown in the economies, which, in turn, suggests that prices such as oil will continue with at least weak prospects. That, without a doubt, is not good news for the Colombian economy, exporter of crude oil.

And Colombia?

Undoubtedly one of the most direct effects could be seen in the price of the dollar, which reached $ 3,423.3 on Friday, up 0.98% compared to the previous close. The level of the currency will depend largely on Trump's success in his intention to weaken his country's currency, a purpose that, incidentally, has enraged him with the Federal Reserve (Fed). The president insists that the Fed should lower interest rates further – the price of money – because the dollar is so strong that it affects competitiveness.

The volatility of our exchange rate has been immersed in what some already qualify as a currency war. Do not forget that on August 5 the dollar in Colombia broke a record after the People's Bank of China devalued the yuan (broke the US $ 7), which dragged this and other currencies of emerging economies. The strategy was that, since China is exporting more to the United States than it is, depreciating the currency generates more profits in the exchange. Now, it is clear that Donald Trump is focused on weakening the dollar as it gives way.

For the moment, said Alejandro Reyes, in Colombia, the expensive dollar can be positive for those who export or are encouraged to do so, as well as for tourism. The Minister of Commerce, José Manuel Restrepo, said in an interview with this newspaper that it is not only an opportunity to bring foreign tourists, but to encourage domestic tourism (given that it is very expensive to travel abroad).

However, a high exchange rate is not good for those who need to import or for those who have debts in dollars. Therefore, according to Reyes, if the dollar continues to rise, one might even think that there would be a transfer of these higher costs to the consumer, increasing inflation.

Meanwhile, according to Jaime Tenjo, director of the Department of Economics at the Jorge Tadeo Lozano University, Colombia could take advantage to export certain products that become more competitive in this commercial war. This week, for example, Amcham stressed that Colombia's external sales to the United States in doors, windows, aluminum frames and thresholds until June of this year are growing 50.7%.

However, this Friday Amcham said: “Both Chinese and Americans will fully tax their counterpart's exports, which will affect their economies and, being the two most important powers in the world, will lead to a deeper deceleration of global growth, in addition to affecting global value chains, competitiveness and free trade, as other countries will have to protect themselves from surpluses that will go out to look for markets. ”

Mauricio Cárdenas, former Minister of Finance, said on his Twitter account: “Put on your belt. It started the trade war in the form with the announcement of tariffs by China. There is not much Colombia can do, but we have to grow on our own. The global economy is not going to help us. ” Jaime Tejo points out that promoting domestic consumption must be one of the strategies.

The ghost of the recession

The trade war has already shown its effects in countries that depend heavily on its exports, such as Europe's strongest economy: Germany. If its GDP continues to contract next quarter, it would enter into a technical recession. That, coupled with other signals such as the negative curve of the US debt performance (that the short-term one has a better return than the long-term one), has caused fear that the world is heading for a recession.

In his speech on Friday at the annual convention of central banks in Jackson Hole, Wyoming, United States, Fed Chairman Jerome Powell said he remained optimistic about the future of the US economy, although, as reported by the AFP, he said that there are "significant risks" due to the deterioration of global growth. The Federal Reserve cut interest rates at the end of last July, for the first time in a decade, a trend that has been followed by central banks in New Zealand, India, Egypt and Brazil, among others, in an attempt to stimulate economies.

Different analysts agree that talking about recession at this point is rushed. “At the moment the US economy shows no obvious signs of crisis. Investment and manufacturing production have fallen, but that is not alarming. In addition, there are positive data: household consumption is going well, and also exports, ”said Juan Carlos Echeverry, former finance minister in an interview with this newspaper on August 15.

Alejandro Reyes, however, recognizes that "with each escalation of the commercial war the big question is whether or not it is necessary to make investments for the increasingly less global demand." He adds that if there are no such investments, "we would be signing" a greater probability of a global recession scenario. Something that, however, experts agree is that Donald Trump's re-election intentions could play in favor: no one would like to embark on a presidential campaign in the midst of a recession.


2019-08-23T19: 00: 00-05: 00


2019-08-23T20: 50: 31-05: 00

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María Alejandra Medina C. / @Alejandra_mdn


Commercial war escalated and now it is more than "show your teeth"





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