Trade battles launched by Trump frequently result in losses.

The High Stakes, 25K-Euro Game: Trump's Trade War Leaves Few Winners

Trade battles launched by Trump frequently result in losses.

Take a seat, folks, because we're diving into the world of economics, global trade, and a rollercoaster ride with President Trump's trade policies. While the US economy is bearing the brunt, other nations are feeling the heat too. Buckle up!

The tariffs may seem like pocket change, but it's not the tariffs themselves that are causing problems. It's the constant flip-flopping. Recently, some of the hard-hitting tariffs imposed back in April were reinstated for 90 days, leaving the US with only a few weeks to work out "fair" trade deals with other countries – as Trump sees it.

But striking "deals" with every trading partner? A tall order, to say the least, and China, a significant trading partner, remains under the stranglehold of import tariffs reaching up to 145 percent. While negotiations are underway, we're waiting with bated breath to see if an agreement can be forged.

In early May, Trump reportedly ordered the US Department of Commerce to start imposing a 100% tariff on all foreign films coming into the country. The goal? More American-made films. The question is, will it actually happen? Time will tell.

The Crown Jewel of Uncertainty

Trump's erratic approach makes it nearly impossible for companies and consumers to plan for the medium term. This indecision could lead to delayed investment decisions and affects consumers in various ways. As illustrated by the US trade deficit, which climbed to $140.5 billion in March, a jump of 14 percent from the previous month.

Companies and consumers are stockpiling imported goods in fear of tariffs sending prices soaring. However, this temporary solution may not hold up in the long run. Rising tariffs often lead to a decrease in demand due to higher prices, posing a threat to the consumer-driven US economy. Many economists and consumers alike now predict a recession in the US.

The Fed's Hands Are Tied (And Maybe Frustrated)

Higher prices for imported goods allow American companies to boost their prices. Tariffs are a recipe for inflation. In theory, the US Federal Reserve (Fed) should lower interest rates to stimulate the economy. But, with rising inflation, any rate reduction would likely be counteracted.

But it's not just the US that's affected. The global economy is feeling the pinch from these tariffs. Despite government assurances, there are few winners in this trade war. The losses in global economic growth due to the sudden imposition of tariffs on aluminum, steel, cars, car parts, and country-specific tariffs - coupled with global import tariffs – will be significant and already being felt this year.

China's economy is taking a hard hit, as Trump's trade policies are focusing squarely on China. While Beijing can mitigate some damage with fiscal and monetary stimulus, a significant slowdown in growth to around 4% is predicted for China this year.

The Eurozone can't escape the US tariffs either. However, the impact on individual member countries varies greatly based on their industry and export dependence. Thus, growth losses in Germany and Italy are anticipated to be greater than in France and Spain.

The American stock markets have spoken, and their verdict is harsh: Wall Street has taken a nose-dive since the start of the year. Gold, on the other hand, is smiling at the uncertainties in the financial markets and a weak dollar.

The 25K Euro Question

In this uncertain environment, investors need to tread cautiously. With the American stock markets on a rollercoaster ride, it's wise to allocate less than half of a 25K euro investment to stocks to reduce risk. They should focus more on Europe than the US, where the tariff confusion reigns and American stock valuations remain too high. A higher share of government and corporate bonds will provide more stability in the portfolio. Gold is likely to continue benefiting from high demand from central banks and private investors. Finally, investors must maintain liquidity to capitalize on potential price declines.

Consider This: Stocks – The Outlook for 2025 Rally or Correction? Reinhard Pfingsten has been serving as Chief Investment Officer at the Deutsche Apotheker- und Ärztebank since September 2023. He previously held this position at Bethmann Bank and Hauck & Aufhäuser Privatbankiers.

Enrichment Data:

The anticipated economic impacts of Trump's trade war in 2023 on the Eurozone, China, and the US, as obtained from credible sources, are as follows:

Impact on the US Economy

• The tariffs imposed by the Trump administration are projected to reduce the US long-run GDP by roughly 0.2%, capital stock by 0.1%, and lead to the loss of around 142,000 full-time equivalent jobs. Pre-tax wages, however, remain stable due to proportional shrinkage in capital stock and hours worked[1].
• Retaliatory tariffs by foreign governments reduce US GDP by less than 0.05% and employment by around 27,000 jobs, yet these tariffs do not generate revenue for the US government[1].
• The trade war leads to weaker consumption, lower wealth, and export contractions, adversely impacting the overall US economy and small businesses[4][5].
• The US GDP might decline by up to 0.7% under scenarios of no trade deal and tariff retaliation[2].

Impact on the Eurozone

• EU GDP is expected to contract by approximately 0.3%, with a range of 0 to 0.5% decline under different scenarios. This slowdown is unlikely to push the EU into recession, considering pre-tariff expected growth around 1.5% in 2025[2].
• The German economy, as a significant European market, could experience a GDP contraction averaging 0.4%, reflecting its sensitivity to US tariff measures[2].
• US exports to the EU could plummet sharply (between 8% and 66% in a no-deal scenario), while EU exports to the US are anticipated to drop by a smaller margin (0.6% to 1.1%)[2].
• The Eurozone faces trade disruptions but comparatively less severe impacts than the US, due to less reliance on imports of final-consumption goods from the US[2].

Impact on China

• Direct trade between the US and China could collapse, although indirect exports of Chinese goods to the US may remain relatively unaffected due to global supply chain adjustments[3].
• The 2023 tariff measures – particularly the reciprocal tariffs and country-specific measures – are exceptionally high and anticipated to significantly alter trade patterns, production, and global value chains involving China[3].
• China’s retaliatory tariffs contribute to trade tensions but also buffer some impacts by targeting specific US imports, potentially affecting sectors differently[3].

Summary

The Trump trade war in 2023 leads to moderate but meaningful economic contractions: the US faces the most severe impact with a GDP decline up to 0.7% and significant job losses; the Eurozone incurs a smaller GDP shock around 0.3%, with Germany particularly affected; and China confronts substantial trade disruptions, including a potential collapse of direct trade with the US but with some mitigation through indirect trade routes and sector-specific tariff adjustments[1][2][3]. Overall, the trade war disrupts global supply chains and dampens economic growth across these major economies.

1. The community policy must address the uncertainties caused by the employment policy, specifically the constant fluctuations in tariffs imposed by the Trump administration, as it impacts businesses and consumers alike.
2. The finance sector will likely see increased investments due to the employment policy, as higher tariffs can boost prices for imported goods and allow American companies to raise their own prices, leading to inflation.
3. The business outlook for 2023 suggests a precarious economic situation, with the tariffs probably leading to significant economic losses in the US, Eurozone, and China.
4. Politicians and policymakers need to consider the long-term effects of their decisions, particularly regarding the employment policy, as it has the potential to provoke recessions and lead to job losses.
5. In the general-news, the employment policy is a hot topic, with many articles focusing on the impact of tariffs on businesses, employment rates, and global economic growth.

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