The real losers of Trump’s trade wars are …
Since June 2016, the world has been plunged into an environment where there is significant political uncertainty and changes. In June 2016, the UK voted that they want to leave the European Union and in January 2017, the US elected Donald Trump as President.
These events have had a major impact on the international economic climate, the effects of which are being felt on a constant basis.
The Trump card
When Donald Trump was elected the 45th US president in January 2017, some were shocked, but many were preparing themselves for the bumpy ride that his presidency promised.
Speaking at the 5th Annual Sovereign Retirement Seminar, Daniel Silke – Director of Political Futures Consultancy – said that the ride had been bumpier than expected, and that there are many unanswered questions in terms of changing political and economic policies.
One of the biggest political changes that we have seen under the leadership of Trump is the trade wars that the US is currently engaged in with various countries.
“The fact that the US is becoming more inward focused is driving the US economy forward, but it is also damaging the world economy. This is especially true when we consider the current trade war with China. Not only does it affect the Chinese economy, but every other developing economy in the world as well,” said Silke who added that Trump’s impasse with Turkish President Recep Erdo?an is also detrimental for developing economies.
The ceasing engine
How do the current trade wars affect developing economies?
Firstly, the trade wars with China means that there are fewer imports going into the US from the Asian super power. This means that China will have a lower demand for commodities such as palladium which is a key component in catalytic converters which are fitted into automobiles. Palladium is also a key element in the manufacturing in of components that are fitted into mobile devices that are exported all over the world; particularly to the US.
“For many developing economies, commodities play a vital role in their engine of growth. These trade wars may see these engines ceasing. Emerging markets are seeing growth plateauing and the strength of their currency dropping,” said Silke.
He added that some markets are more susceptible to change than others; these include Turkey, South Africa, Colombia, and Mexico.
An alternative theory
Trump has said in the media that these trade wars are part of his plan to Make America Great Again.
However, there is an alternative theory doing the rounds that the current situation with China is as much a result of fear as of efforts to strengthen the US economy by becoming inward looking.
“The rise of China is a major threat for the US, and Trump is weary of this. A major export that comes out of the US is technology which is manufactured in Silicon Valley. However, China has stated that it wants to become the world’s leading technology provider by 2025. This will be devastating for the US economy,” said Joanne Baynham – Head of Global Investment Strategy at Miton Optimal South Africa.
Don’t mention Europe
It is not only the US that is currently causing havoc politically.
“Brexit is a mess. There are some tough times ahead for the UK as the rest of the European Union (EU) make sure that the UK faces a hard Brexit scenario. This will be a challenge for Theresa May as she will try to keep the UK, and the Pound, afloat,” said Baynham. She added that a weaker Pound may be good for the country as countries with weaker economies will once again be eager to do business.
Italy may provide the EU with its latest casualty. Baynham said that the Italians face high levels of debt and the country needs to urgently embark on an infrastructure build programme that it currently cannot afford. “The recent bridge collapse in Genoa is an example of the need for an infrastructure built programme,” said Baynham who added that the EU cannot have a system where one half of Europe is thriving while the other is floundering.
South Africa can prosper
Over the past two years, we have seen political developments in South Africa that we never thought we would see.
Former President Jacob Zuma was held accountable by the judicial system, the Constitutional Court recently ruled that the appointment of the former head of the National Prosecuting Authority, Shaun Abrahams, was illegal.
“There was also a surge of investor confidence following the appointment of Cyril Ramaphosa as State President, and this can continue provided that Ramaphosa can get the senior leaders within the African National Congress (ANC) to sing off the same hymn sheet. Emerging economies now hold a greater share of the world’s Gross Domestic Product (GDP) and futurists say that emerging economies is where the action will be in the future. South Africa must take its rightful place in this,” said Silke.
Editor's Thoughts:
The political scenes worldwide are in a bit of a mess. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
