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Global trade conflict fears to keep markets on edge for weeks

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BRUSSELS: A full-scale global trade war has not broken out yet — but that hasn’t stopped the market from fretting about one or analysts from warning about the potential cost. Whether such concerns remain a driving force for asset prices in the coming days depends largely on decisions, tweets and formal announcements from Washington and Beijing, but it seems certain that the uncertainty has at least another month to run.


South Korea has cut a deal with the United States, agreeing to reduce its steel exports to avoid tariffs.


The European Union, Canada, Mexico, Brazil, Australia and Argentina face a May 1 deadline to reach equivalent deals.


US President Donald Trump has tied the suspension of tariffs for Canada and Mexico to a renegotiation of Nafta.


Officials have said the next round of talks was due to start on April 8, but that date is not certain and there are mixed messages on the chances of a quick breakthrough.


China has meanwhile warned that it could target a broad range of US businesses if Trump slapped tariffs on $50-$60 billion of largely high tech Chinese goods, although the latter may not happen until early June.


Economists at ING split such a conflict into four stages from a lone Trump attack to a tit-for-tat battle to US escalation, such as including EU cars, and finally an all-out trade war.


The last, ING estimates, would harm all economies, with the United States facing the heaviest hit, of some 2 per cent of gross domestic product (GDP) over two years, with US exporters facing high tariffs at all borders while the rest of the world keeps its prevailing arrangements in place.


Only in the first scenario, in which Trump imposes tariffs and no one retaliates, would the United States make any noticeable economic gain — of some 0.3 per cent of GDP.


ING’s head of international trade analysis Raoul Leering said that the conflict was currently somewhere between the first scenario and the second ‘tit-for-tat’ stage.


“If other countries give in and give Trump something in return, then we’re looking at scenario one,” he said. ‘‘It’s a conflict in which Trump could turn out to be the winner.”


Harm Bandholz, chief US economist at UniCredit, believes that the trade conflict is likely to be the main driver of market sentiment for weeks to come, although for the time being it is “barely more than tough talk”, with strong announcements then watered down, such as with the metal tariff exemptions.


“If it stays like this it’s not really altering anything in the macro outlook.


The risk is, once you’ve started, you’re on a slippery slope and you don’t know if you can stop. That’s the risk markets are worried about,” he said.


“People are worried about accidents happening. Clearly, if you are more aggressive, the chances of mistakes or something bad happening will increase.”


All that said, and even with many in Europe off for Easter vacation, some major economic data is due in the coming week. — Reuters


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