The full-scale international trade war has not yet exploded, but that does not prevent markets from being bullied by the thought of such, nor analysts who warn of how much it will cost. Whether worries will continue to be a driving force for asset prices over the coming days depends largely on the decisions, tweets and official announcements of Washington and Beijing. However, it seems likely that the doubts will continue for at least another month.
South Korea has signed an agreement with the US, agreeing to reduce its steel exports to avoid imposing duties. The European Union, Canada, Mexico, Brazil, Australia and Argentina have a deadline of May 1 to negotiate similar deals.
The US President Donald Trump has banned the cancellation of Canada and Mexico bills by renegotiating the NAFTA agreement. Meanwhile, China warned that can attack a wide range of American businesses if Trump impose duties on Chinese goods for 50-60 billion USD, although US measures can not take effect before early June.
The economists divide a similar conflict into four options: one-sided Trump attack, reciprocal sanctions, the US escalation, and full-scale trade war.
The latter will harm all the world economies. The United States will receive the strongest hit of 2% of gross domestic product (GDP) over a two-year period. The country will also face high tariffs at all borders, while the rest of the world retains its existing arrangements. Only in the first option where Trump introduces levies and nobody answers, there will be significant US economic benefits of 0.3% of GDP.
If other countries surrender and give Trump something in return, maybe will happen the first scenario.
The trade conflict is likely to be a major driver of market sentiment for weeks ahead, although for the moment there are no more “strong words” and strong statements that are then mitigated, just as the case with the exemption from metal tariffs.
On this background, the important economic data will be published next week.
Japan’s Central Bank business survey, due to be released on Tuesday, is expected to show that moods are slightly worsening in the first three months of the year to March, with forecasts for the next quarter also declining, reflecting worries that the strong yen can affect profits.
In Europe, the first Eurozone inflation figures will be released on Wednesday, with expectations for it to rise to 1.4% in March from 1.1% in February. Some economists even point out that there is a probability of 1.5%. Early Easter this year, which raised the prices of package holidays and accommodation in March, cold weather, increased fruit and vegetable prices, as well as a more rapid rise in energy costs on an annual basis will also have a bearing. Even if inflation stays outside the European Central Bank targets of nearly 2%, the bankers are considering whether to end the wasteful buying of bonds later in the year. The program is due to end in September.
In the United States, monthly employment data will be released on Friday. The expectations are that the economy has added far fewer jobs than the 313,000 in February. But the average forecasts still give strong expectations for 203,000 jobs, with unemployment expected to fall further to 4% – values not seen since 2000.