Trump trade war: Why a figure of 48% is important as escalation nears

Here is a number to sit in your brain in the coming weeks and months: 48%.

Last year a group of economists performed an an an analysis about the economic impact of the Iron Curtain; How much trade actually took place from east to west despite all the restrictions during the Cold War. They concluded that, at its peak in 1951, “the Iron Curtain represents a tariff equivalent of 48%”.

While the world is ahead of what Donald Trump calls his ‘Liberation Day’, the figure is worth keeping in your mind.

At present, the average protestable rates on China are between 30% and 40% somewhere. But in the event that the president imposes another 20% of rates on China, rates between these two trading partners will compete or possibly exceed the iron curtain levels.

No one is sure what will happen next. What number will the president opt for his next tariff round? 10%? 20%? Or the 25% rate he chose for steel, aluminum and cars? Will the next round of the rates be announced this week to be imposed on each country? Will they just be imposed on the so-called “dirty fifteen” that Treasury Secretary talked about? Who is the ‘dirty fifteen’ for that case?

We do not know the answers to these questions. Other world leaders like Keir Neither. It is also not for the cause that does a lot in the White House.

But back to the number at the top. The rates the president and his colleagues are talking about are now approaching serious levels. Once you start on the cumulative rates, you have 50% closer, as we saw during the Cold War, and many countries stop trading completely.

And with the kind of charges that are on track, it is no surprise that many companies and traders are taking radical steps to prepare for the coming months of chaos. Consider two examples.

The first can be found if you look at the export (transfers are probably a better word in this case) of the UK gold to the US. Until a few months ago, these streams averaged about £ 22m a month. When traders about the imposition of rates and controls fitted on everything (including gold), there was a totally unprecedented exodus from the UK to the US – £ 1.2bn in December and £ 6.1bn in January. It goes without saying that these numbers are completely unprecedented. We have never seen outflow like this before.

The other data point (somewhat related) should be found by looking at the US balance of payments. Remember that the entire point of these rates is to try to eliminate (or at least reduce) America’s trading deficit with the rest of the world. President Trump wants the country to produce more goods and import less.

Read more:
What does Trump’s rates mean for the UK?
Rates: The rewards and risks to us as the trade war reinforces

But over the past year, US trading deficit has literally doubled. From £ 67bn in January last year to £ 131bn in January. Again, it’s unprecedented. It is a feature of the fact that importers struggled to bring as many things as possible to the country (not just gold, but machinery, metals, cars, electronics – all) before rates were imposed.

So the great irony is that the first impact of the Trump tariffs was to send the trade deficit in the opposite direction as the one the president strives for. Of course, this will fall back in the coming months. But where it ends, someone’s guess is. Meanwhile, more chaos and instability are waiting. Hold on to your hats.

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