As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Unsurprisingly this has not gone down well with said trading partners and has seen most of them hit back their own retaliatory tariffs, sparking concerns that the US have just fired the first shots in a global trade war.
But what does this involve and how could it impact your business? Read on to find out more...
President Trump has frequently criticized US trading partners for what he sees as unfair trade agreements with the US.
Why is there a threat of a trade war?
Trump argues that unbalanced trade leaves US manufacturers at a disadvantage and has led to the US trade deficit swelling to over $50bn as imports of cheap foreign goods greatly outstrip US goods exports.
While the President made some moves towards addressing this in his first year in office through his calls to renegotiate the North American Free Trade Agreement with Mexico and Canada, 2018 has seen Trump set his sights on the rest of the world as well.
President Trump made bold promises during his election campaign that he would address the US trade deficit.
What does Trump want to achieve?
He sees the deficit as evidence that US manufacturers are getting a rough deal and believes the only way to solve this is by making US produced goods more attractive, both at home and abroad.
In turn he hopes this will bolster investment in the US and help create more jobs in the US, particularly in the US rust belt, which has been hit hard by the decline of the US manufacturing sector and is a major support base for the President.
Pretty much all major US trading partners are now facing steep tariffs when importing to the US, with the EU, Canada and Mexico all being hit by 25% tariffs on steel and aluminium earlier this year.
However it’s the US trade spat with China which is really stoking fears of a potential trade war as Trump seeks to slash the $375bn trade deficit between the two countries by imposing tariffs on a wide range of Chinese exports.
So far this has seen the Whitehouse impose tariffs on $50bn worth of Chinese exports, with preparations underway in Washington to slap tariffs on a further $200bn of Chinese goods in September.
Given the dominance of the US and Chinese markets, even those countries not being directly targeted by Trump are likely to feel the sting of US trade tariffs.
The international reaction to Trump’s tariffs has understandably been one of anger, with accusations that US trade protectionism risks global growth, especially as many countries have responded with their own tit-for-tat tariffs, targeting US products such as Levi’s jeans and Harley Davidson motorcycles.
What has been the response so far?
On the domestic front the reaction has been a little more mixed, with Trump’s core supporter’s praising the move, while US business leaders remain critical, fearing the move will isolate the US and weaken US growth.
China has so far has responded by matching US tariffs and targeting $50bn worth of US goods, however given that China’s total imports of US good is only valued at $130bn, it will be unable to keep pace if Trumps goes forward with his plans for the next round of tariffs worth $200bn.
Beijing will then have to decide if it wishes to pursue other means to match this by either implementing steeper tariffs or targeting trade in services, a sector in which the US benefits far more than China.
Another route would be for Beijing to apply pressure on Washington and make it more difficult for US companies to operate in China, such as delaying imports and exports through the implementation of more rigorous checks at ports.
Any of these measures would mark a major escalation in trade tensions between the US and China and would be a considerable step towards a full-blown trade war between the two nations.
There is optimism that a trade war could still be averted however, with many pinning their hopes on that a trade delegation from Beijing will help to ease tensions when it visits the US toward the end of August.
If your business is involved in the import or export of goods, through relying on overseas suppliers or sending on international marketplaces, then the introduction of these tariffs will of course have an impact on your business.
How might this impact your business?
Even if the products you’re moving are yet to be slapped with additional tariffs, it’s likely that costs will still rise as manufacturers are forced to raise prices in order to cover tariffs on machinery and other tools used in production.
Should trade tensions continue to heat up it is also likely that there could be delays in the processing of import and exports as port authorities have to contend with varying tariffs of different products, while a full blown trade war could see countries even begin to implement boycotts.
While you can’t avoid these new tariffs, you can help alleviate some of the pressure on your business’s bottom line by ensuring you’re not spending even more than you need to when making overseas purchases and that you’re maximising your potential earnings from international clients.
Is there anything you can do to minimise the impact?
One of the most effective ways to achieve this is by using a leading currency provider to manage your international payments.
With us, you’ll get access to competitive exchange rates, expert insight and a range of transfer options that can be tailored to your company’s needs.