Trump’s trade war is in full swing, and ripples are spreading across the globe

While steel has specific implications for national interests (for example, the European Commission has noted the importance of the planned expansion of Europe’s arms production), there are other sectors where tensions are rising.

Electric car exports are another high-profile sector, coming from a Chinese industry marked by massive overcapacity and only a few profitable companies; But even clothing and textile markets are being affected by the shift of exports from China and Asia more broadly away from the United States.

For example, EU imports of clothing and textiles increased by 20 percent in value and volume in the first half of this year, threatening the EU industry, which employs around 1.3 million people and generates annual sales of around $300 billion.

The EU is now proposing to emulate the US by scrapping the duty-free threshold of around $265 for small package imports and charging a flat fee instead. This is a response to the impact of the removal of America’s US$800 ($1200) tax exemption on small packages, as Chinese online retailers such as Shein and Temu look for new markets to make up for their lost competitive edge in America.

With European companies not only competing with Asian rivals but also experiencing lower sales in the United States due to Trump’s 15 percent tariffs on most of their imports, there is growing pressure from the clothing and textile industries to maintain their own tariffs.

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It is noteworthy that the anticipated tit-for-tat international retaliation that would have occurred in response to Trump’s trade wars has not materialized. All countries trading with the United States have had varying levels of tariffs imposed on their exports to the United States, but few, except China, have reciprocated.

This is part of the explanation for why global trade is doing better than expected.

Global trade in goods performed above expectations in the first half of this year, the World Trade Organization said in a report on Tuesday. While it had previously forecast growth of only 0.9 percent this year, it now expects growth of 2.4 percent.

But it also lowered its forecast for next year from 1.8 percent to 0.5 percent.

There are several reasons for such a big change in expectations between the WTO’s estimates in August and its revised estimates.

The largest and broadest of the Trump tariffs were announced on “Liberation Day” (April 2), but their implementation was delayed as the administration tried to negotiate individual deals with larger trading partners and only began to “go live” in early August.

Meanwhile, U.S. companies seized the opportunity to “front-load” their purchases by building up stocks of duty-free imports to postpone the ultimate impact of tariffs on their costs, prices and sales. Therefore, growth in trade in the first half was much stronger than the WTO expected.

Now that the US tariff wall is in place (although Trump continues to add to it), the impact of the tariffs will gradually increase and become more visible as bloated stocks are depleted. Therefore, there is a bleak outlook for business next year.

It won’t just be trade in goods that will be affected. Growth in services exports is also expected to slow, from 6.8 percent last year to 4.6 percent this year and 4.4 percent next year, the WTO said. While services are not (yet) subject to tariffs, the WTO says trade in services may be indirectly affected by links with trade in goods.

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The upside to the gloomy outlook painted by the WTO was that AI-related goods (semiconductors, servers and telecommunications equipment) accounted for almost half of the growth in first-half trade, with the value of these goods rising by 20 percent on an annual basis.

Some economists have calculated that AI-related spending accounts for nearly all of America’s economic growth this year. Investments in AI-related data centres, chips and power generation have accelerated throughout the year and are expected to reach US$400 billion ($601 billion) this year in the US alone.

It’s a bright note on the still-emerging but increasingly bleak outlook for global trade that will become even darker and more complex if countries continue to respond to Trump’s trade war by erecting their own barriers to slow the growth of imports diverted from the United States.

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