World Economy

Lagarde Says Nobody Wins in Trade War

The Trump administration has made the WTO a preferred target of its “America First” policy, threatening to pull the US out of the trade body
Electronics is one of the largest slices of US-China trade.Electronics is one of the largest slices of US-China trade.

The International Monetary Fund’s Managing Director Christine Lagarde said on Wednesday that nobody wins in a trade war and that the macro-economic impact of US tariffs on imports would be serious if other countries respond with tariffs of their own.

“The macro-economic impact would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany in particular,” Lagarde said on French radio RTL, Reuters reported.

On Tuesday, US President Donald Trump reiterated his plan to slap big tariffs on imports of steel and aluminum, warning the European Union it would get hit with a “big tax” for not treating the US well when it comes to trade.

“In a so-called trade war, driven by reciprocal increases of import tariffs, nobody wins, one generally finds losers on both sides,” Lagarde said, adding that she hoped that Trump would not implement the tariffs threat. “We recommend an agreement between the different parties, and talks,” she said.

However, she indicated that Trump might have a case for threatening to slap tariffs on some imports, saying there were a few good reasons to protest against the current situation.

“There are some countries in the world that do not necessarily respect the World Trade Organization agreements, and which impose technology transfers. China is a case in point but it is not the only country with such practices,” she said.

The Trump administration has made the WTO a preferred target of its "America First" policy, threatening to pull the US out of the trade body it says is hampering its ability to compete.


Point to Ponder

One has to wonder how the US will prevail in a trade conflict with China when its own companies have the most to lose, notably in the technology sector, Bloomberg reported.

Electronics is one of the largest slices of US-China trade. Apple Inc.'s iPhones are already made in China, by a Taiwanese company, so slapping on import tariffs at both borders won't affect sales much in the world's most populous nation.

It could upset the Apple cart in America, though. Apple would be forced to raise prices, then hope that Foxconn Technology Group Chairman Terry Gou might be willing to build iPhones there. He did that once before, in Brazil, and wasted a lot of money. He's just done the same in India after that government slapped a tariff on smartphones, but not to build iPhones. Instead, Gou's FIH Mobile Ltd. is expanding to service Chinese brands such as Xiaomi and Oppo already in the nation.

It would be quite the irony if Trump's tariff plan saw non-Apple devices made in the US. And it would certainly help South Korea's Samsung Electronics Co. gain ground.

I suppose it's germane to point to Foxconn's planned Wisconsin plant as evidence the company is willing to set up in America. But it shouldn't be forgotten that Gou's price was close to $20 billion—Foxconn even asked for $200 million upfront—and that he's planning to make display panels. IPhone assembly is far less automated and highly seasonal; Gou's going to need a lot more than $20 billion to make iPhones there.

Turning then to Intel Corp., Qualcomm Inc., Micron Technology Inc. and Broadcom Ltd. Here are four huge semiconductor firms that not only rely on China for sales, but which need to grapple with a national policy—backed by tens of billions of dollars of state money—to wean China off foreign technology.

EU's Backlash

The European Union intends to target €2.8 billion ($3.5 billion) of US goods ranging from T-shirts to motorcycles should Trump go ahead with his plan to impose a 25% tariff on foreign steel.

The EU aims to apply a tit-for-tat levy on a range of consumer, agricultural and steel goods imported from the US, according to a list drawn up by the European Commission and obtained by Bloomberg News. The commission, the EU’s executive arm, discussed the measures with representatives of the bloc’s governments at a meeting on Monday evening in Brussels.

The EU’s retaliatory list targets imports from the US of shirts, jeans, cosmetics, other consumer goods, motorbikes and pleasure boats worth around €1 billion; orange juice, corn and other agricultural products totaling €951 million; and steel and other industrial products valued at €854 million.


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