US President's trade war could get out of control, but don't panic yet

THE International Monetary Fund (IMF), the Organisation for Economic
Cooperation and Development (OECD), and the majority of investment
banks and think tanks are concerned about the latest round of
tit-for-tat tariff battles.

They have condemned them, and some - including the IMF's boss
Christine Lagarde - have rounded on the main protagonist: US President
Donald Trump. But they have not yet started to panic, according to a
report by UK's The Guardian.

The European Union's retaliation against steel and aluminium tariffs
imposed by Mr Trump amounted to US$3.4 billion on US products
including bourbon, peanut butter and orange juice.

It's virtually the same targets the EU picked in 2002 when US
President George W Bush thought it might profit him to slap steel and
aluminium tariffs on European suppliers.

The sum of money involved is small and, compared to the trillions of
dollars traded each year, almost a rounding error. But in 2002 it
worked and Mr Bush backed down.

In two weeks, the US will start taxing $34 billion of Chinese goods.
Beijing has vowed to immediately retaliate with its own tariffs on
American soybeans and other farm products.

An escalation of tariffs between the world's two largest economies
should not be downplayed. A civilised arguement with the EU is one
thing: a determined effort to punish China for a long list of
trade-related misdemeanours is another.

The battle seemingly has no end and the fallout might not just cost
consumers money: it might also destabilise decades-old global trading
arrangements.

Mr Trump's comment that he wanted to banish the sight of Mercedes cars
in New York followed his administration opening a trade investigation
into vehicle imports, which would result in a 20 per cent tariff on
cars unless action was taken by the EU.

A 20 per cent tariff, up from 2.5 per cent, on the cost of a foreign
car could lower eurozone GDP by 0.3 per cent at least, according to
Bank of America Merrill Lynch. It would take a 7.5 per cent
appreciation in the value of the dollar, and a concomitant rise in the
purchasing power of prospective American customers, to offset such a
rise.