The trade war between the world’s two largest economies has ripple effects that impact companies and consumers. As the tariffs on steel and aluminum ratchet up, costs increase for American manufacturers who depend on imports of those materials. Meanwhile, the cost of Chinese goods destined for the U.S. increases for consumers who must pay higher prices in the short term. In the long run, the loss of global trade slows economic growth and raises prices worldwide.
As trade friction continues, a global recession is feared as demand falters, foreign investment slows and businesses rethink their expansion plans. This is because the impact of a trade war reduces economic output globally, as exports decline and price signals are distorted. Tariffs also lead to volatility in financial markets, which can hurt investments and cause economic uncertainty.
Developing countries are often disproportionately affected by trade tensions, as their reliance on exports is much higher. As a result, the escalating trade war creates volatility in global financial markets and can disrupt global supply chains, which slows production and raises consumer prices. It can also lead to political instability and strain international cooperation.
The EU is trying to negotiate a deal with Trump that would satisfy both sides, but it’s not clear whether the two parties can find common ground. The EU wants carve-outs for its auto sector and is wary of damaging transatlantic defense cooperation. Trump, meanwhile, insists on confronting China and wants to protect his domestic manufacturing jobs.