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US Efforts to Escalate Trade War Regrettable

The trade spats have so far had a “rather limited” impact on the economy, but that could change as consumer and business confidence declines, hurting employment and growth prospects
Olli Rehn (L) says a US withdrawal from WTO would “damage the liberal international order and the foundations of free and fair trade.”Olli Rehn (L) says a US withdrawal from WTO would “damage the liberal international order and the foundations of free and fair trade.”

European Central Bank policymaker Olli Rehn hit back against US President Donald Trump’s accusation that Europe is manipulating its currency and is “almost as bad as China” on trade.

“It’s very regrettable that from the US side there is a tendency to escalate the trade war, especially with China and also with Europe,” the Bank of Finland governor and former European Union commissioner said in a Bloomberg Television interview on Friday. “I don’t find it very serious to compare Chinese and European trade policies.”

Tensions seem set to flare up again after Trump cast doubt on the longevity of the truce he agreed with European Commission President Jean-Claude Juncker in late July. In a Bloomberg interview, the US president also likened the euro to China’s currency, which he claims is manipulated to disadvantage American companies and undermine his efforts to right global trade imbalances.

“The ECB certainly is not manipulating the euro,” Rehn said. “My reading of the Chinese situation is that in fact the Chinese yuan has been weakened mainly because of the threat of escalation of the trade war, not because of manipulation from the central bank. Quite actually to the contrary.”

Rehn also said that the trade spats have so far had a “rather limited” impact on the economy, but that could change as consumer and business confidence declines, hurting employment and growth prospects.

“I very much wish that this unnecessary rhetoric would cease and we would not try to escalate the wars,” he said.

Threat of WTO Withdrawal

Responding to Trump’s threat to pull out of the World Trade Organization if it doesn’t treat the US better, Rehn reaffirmed Europe’s commitment to reforming the Geneva-based body, and said a US withdrawal would “damage the liberal international order and the foundations of world trade, free and fair trade.”

If the World Trade Organization doesn't "shape up," Trump told Bloomberg he would pull the United States out, CNBC reported.

In a Thursday interview with Bloomberg, Trump again criticized the international trading group's treatment of the United States. He told Bloomberg, "If they don't shape up, I would withdraw from the WTO."  He explained that the WTO could better "update (or) synchronize its activities."

The president's comments follow previous reports that Trump had told White House aides that he wanted to withdraw from the WTO. But top Trump administration officials haven't been as eager to pull out of the global trade regulator.

$200b Tariff

Trump is ready to take the trade war with China to the next level, according to a new report.

Bloomberg reported Thursday that Trump had told aides that he wants to follow through on a threat to impose tariffs on another $200 billion worth of Chinese goods as early as next week. That would mean more than half of all Chinese imports would be subject to tariffs.

The tariffs could go into effect after the public comment period ends on September 6.

According to the report, the move is not a done deal and the administration could impose the tariffs in installments to lessen the impact. Economists have warned that substantially ramping up the trade war would increase costs for US businesses and harm American companies.

The list of goods that would get hit with the tariffs is still being finalized, but the initial list showed a pronounced shift in Trump's trade-war strategy. It included many consumer goods, such as fabrics and hats, while previous tariffs have focused mostly on industrial goods like machinery.

The move would be a massive escalation of the trade war with China—over 50% of Chinese imports would be subject to tariffs.

When Trump announced the possibility of the tariffs on $200 billion worth of Chinese goods, Beijing responded by threatening tariffs on $60 billion worth of US goods. If those measures go forward, almost all US goods heading to China would be subject to tariffs.

Following the report, US stock indexes slid, with the Dow Jones industrial average off by 143 points, or 0.55%, as of 2:25 p.m. ET, Thursday.

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