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A global economic Cold War is coming – The Globe and Mail



Russian President Vladimir Putin attends a meeting with Chinese President Xi Jinping in Beijing on Feb. 4.SPUTNIK/Reuters

U.S. President Joe Biden has left a threat of global economic war hanging out there with his warning that China would face consequences if it aided Russia in its invasion of Ukraine. But even if that devastating economic clash is averted, the stage has been set for an economic Cold War.

The sanctions imposed against Russia mark the first time economic weapons have been wielded so extensively against such a large adversary.

The freezing of oligarchs’ assets, cutting Russian firms off from the SWIFT payment system, imposing tariffs on many Russian goods – all are being used, quite rightly, to punish Vladimir Putin in lieu of a direct military confrontation with a nuclear power.

They have been imposed in lockstep by countries around the world, notably the massive economies of the United States and the European Union – who remain willing to threaten more.

In others words, economic warfare has been embraced as a viable method of dealing with a geopolitical conflict. That will have an impact.

Biden warned Xi of ‘consequences’ if China provides military or economic support to Russia’s invasion of Ukraine

The world has changed. Our policies – on defence, the economy, and beyond – will have to as well

Even if the direct economic warfare isn’t extended to China and becomes global, the world’s largest economies – China, the U.S., the EU – will surely conclude that they must insulate themselves against economic warfare in the future.

In Beijing and Washington, we can expect an acceleration of efforts to “decouple” their economies from each other. That might cleave the global economy into blocs, and slow trade. It will encourage an economic Cold War.

The effects of a direct economic clash between China and the U.S. are so potentially ruinous that the smart bet is that Chinese President Xi Jinping and Mr. Biden will avoid it.

Sanctions against Russia have led to further rising oil prices and concern for Europe’s energy security. But Canadian business, for example, has seen it mainly as an opportunity to promote Canadian oil and gas as a secure supply for the U.S. and Europe.

“China is a whole different ball game,” said Patrick Leblond, the CN-Paul M. Tellier Chair On Business and Public Policy at the University of Ottawa. “Economically it would be a disaster for China if Chinese firms could not export goods to the rest of the world. But it would also be a disaster for the rest of the world.”

There would be supply chain bottlenecks beyond those seen during the COVID-19 pandemic, spiking inflation even higher. Slowing global trade could lead to global recession. “The stock market would crash,” Mr. Leblond said. “You could see this nightmare scenario.”

Russia-Ukraine live updates

Because there is so much at stake, Mr. Leblond doesn’t think it will happen. If China did help Russia, it would probably be limited; the U.S. would probably respond with targeted sanctions, perhaps cutting off access to advanced computer chips and high-tech goods, he thinks.

That is akin to the Cold War nuclear logic known by the acronym MAD: mutually assured destruction. No one can reasonably start such a conflict. But there are still risks.

Mark Manger, professor of political economy at the Munk School of Global Affairs and Public Policy in Toronto, also thinks the interdependence of the U.S., European and Chinese economies will lead all to avoid a major clash. But things can go awry. Limited Chinese aid to Russia might lead the U.S. to impose targeted sanctions, but an affronted China might retaliate. “Things can very quickly spiral out of control.”

Even if none of that happens, the threat of economic warfare is now more palpable.

China will want to shield itself. The U.S. and possibly Europe will want to ensure they are not so dependent on China that they cannot use economic measures. They will look to accelerate decoupling.

Mr. Biden, like predecessor Donald Trump, has advocated decoupling, notably reducing reliance on Chinese supply chains and keeping Chinese firms out of tech infrastructure such as 5G networks. Beijing has called for securing its own supplies, in tech, energy and even food. Earlier this month, Mr. Xi called for increasing agricultural output to ensure “Chinese bowls are mainly filled with Chinese food.”

Those trends will probably be redoubled now. Other countries will feel the effects. Canada will need a risk assessment of its own vulnerabilities. It also needs economic allies. It is likely to affect business. Canadian firms selling, for example, artificial intelligence technology, might not have longer-terms prospects in the Chinese market.

In the Ukraine war, those economic measures have been an important tactic to punish Mr. Putin. But now every power has to expect they could be used again.

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Here is Trump economy: Slower growth, higher prices and a bigger national debt



If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.



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China Stainless Steel Mogul Fights to Avoid a Second Collapse



Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.



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Why Trump’s re-election could hit Europe’s economy by at least €150 billion



A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.



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