A then I show the chronology of the current trade war, for simplicity we omit the actions taken against Mexico and Europe.
2018: STARTING POINT
March 8
The United States announces a rise in tariffs on steel. For its part, the EU denotes its concern about a possible trade war: "it would be a real disaster for both of us and for the world." The Trump administration imposes a 25% tariff on steel imports and a 10% tariff on aluminum.
April 3
The government of President Donald Trump makes public a list of Chinese goods whose importation would have a total value of 50,000 million dollars. The main sectors affected will be mechanics, appliances, chemicals and electrical equipment. The 58-page document includes a total of 1,333 products. According to statements by the White House, this punishment is imposed for the theft of their trade secrets, including software, patents and other technologies.
April 4
The Asian giant imposes tariff sanctions of 25% on 106 products imported from the United States worth 50,000 million dollars. The affected products are soy, cars and airplanes.
June 2nd
China and the United States open to a new round of negotiations with the intention of appeasing the spirits and avoiding a possible trade war.
July 6th
The negotiations of the past days do not reach a midpoint. The White House announces new levies on Chinese imports for a total amount of 4,000 million dollars. China strikes back with similar measures, mainly attacking the technology sector.
July 11
Five days later, Trump orders new levies for China, of 10% on imported products, worth 200,000 million dollars.
August 23rd
The administrations of both countries launch the second phase of tariffs on a total of goods worth 50,000 million dollars. Its actions reach a group of imports worth 16,000 million dollars.
August 27
After several months of attacks, China denounces the US to the WTO for the various tariffs imposed on its products.
24th September
The United States imposes levies of 10% worth 200,000 million dollars on Chinese products, affecting this time the textile sector. In this context. Beijing attacks US $ 60,000 million in levies on US products, with direct effects on liquefied natural gas.
December 1st
Washington and Beijing announce an agreement to stop trade war and tariff escalation after the G20 meeting in Buenos Aires. They also commit to generate negotiations to finalize a commercial agreement, setting a limit until March 1. In case of not reaching an agreement until that date, the US indicates that it will raise tariffs on Chinese products again by a value of 200,000 million dollars.
2019: VOLTAGES INCREASE
February 25
The US president decides to postpone the rise in tariffs to China thanks to the progress of the negotiations. Internationally, the decision of the White House to delay the increase in levies on Chinese products worth 200,000 million dollars. According to Trump, both countries had made "substantial progress" in trade negotiations, which caused Chinese stocks to rise almost 5%.
May 10
The deterioration of the relations of both powers is evident and the truce ends when Donald Trump announces the increase of 10% to 25% of tariffs for Chinese imports of more than 5,000 products.
may 13th
Through Twitter, Trump states that he found "no reason for the US consumer to pay for the tariffs on China that come into force today. China should not retaliate. It will only make it worse!"
15 th of May
The US president declares his country in a national emergency and prohibits companies in his country from using telecommunications equipment manufactured by Chinese companies, under the argument that they were spying and threatening the national security of the United States, thus attacking the Asian giant Huawei .
May 20
The main technology companies in the US, including Google, will stop selling components and software to Huawei and begin to lower sales of electronic devices of the Asian giant.
May 21th
Huawei denies that US restrictions are going to affect its products or the deployment of 5G technology, in which the Chinese company says to outperform its competitors.
June 1
China increases tariffs. There is a difference of 14 percentage points in the average tariff imposed by China on its US imports compared to other partners.
June 30th
Both powers decide to take a break in the commercial war, after the G20 meeting in Osaka and undertake to restore trade talks between the two nations, interrupted since May. The United States decides not to impose new tariffs on its Chinese imports and will allow its companies to sell Huawei technology products.
July 9th
The United States announces anticipates the end of the blockade to Huawei and that US companies can resume their relations and sell their products.
August 2nd
The US ends the truce and imposes more sanctions on China. Trump announces the imposition of new 10% tariffs on Chinese imports valued at $ 300 billion as of September 1.
August 5
China defies the White House and depreciates the Yuan at levels that have not been seen since 2008. The exchange rate is 7 to 1. The stock markets around the world are going down.
Since the beginning of the Trump Administration, the media have been carriers of news related to the events of the commercial war. Worldwide, expectations have been generated about the impact this phenomenon will cause on the behavior of economic agents and the fluctuations of the most important variables. It is these expectations that have exerted relevant economic influence in the real world since the direct effects of the current commercial war have not yet materialized in the global economic development.
That is why, for example, the exchange rates and the indicators of the Mexican and Chinese stock exchanges, fundamentally, have suffered falls in their quotes since they fully reflect the expectations formed since the beginning of the commercial war .
In the same way, this influence has been felt on the Euro, some European currencies and some European exchanges; However, the effects have been overlapped by other factors outside the commercial war.
These negative expectations have also left their mark on the prices of raw materials, especially oil, thus exercising the commercial war its influence on Latin America. Middle East and Russia.
Oceania and the rest of Asia do not escape devaluations and contraction in stock market indicators, since they are suppliers of food, raw materials and intermediate goods in China.
The other side of the coin we notice when we see that, since the beginning of the trade war, the dollar strengthens, the indicators of the New York stock market are rising more and more, unemployment practically does not exist and even wages rise. This is due to the fact that, in the United States, the expectations associated with the commercial war are absolutely void since the economic and political agents have perceived that the commercial war will not have any effect on the economy and on the political equilibriums established in that nation. However, sometimes, expectations do not become rational.
Since 2016, numerous analysts have pointed out the danger that Trump's triumph in the presidential elections and the subsequent execution of his commercial war would represent for the United States, but in 2019 it is the moment when the spokesmen of the Federal Reserve they affirm that the world economic recession that is approaching will have a negative influence on the United States and, even President Trump has said that he will work to increase trade with Great Britain and Brazil, suggesting that, possibly, US trade relations will be guided, simultaneously, by protectionism in the case of some countries and by free trade in the case of others.
During the year 2019 there is a decrease of about 10% in the US trade deficit with respect to China and it is expected that during the fourth quarter of that year there will be significant increases in the price of imported products, especially those from China.
The sharp decline in Asian imports does not yet generate real negative effects on the global economy since it is assumed by the companies affected as a reduction in production and sales volumes that, while decreasing the profits of Chinese entrepreneurs, will not cause the closure of Asian companies or their commercial transfer.
The companies that should be bankrupt in the second half of the year 2019 and first quarter of 2020 due to the commercial war, will be those small or medium-sized companies that provide services to business conglomerates that, in turn, supply intermediate products or materials premiums to Chinese corporations that are selling their products in the United States. In this sense, the economic sectors formed by small and medium enterprises located in Oceania, Asia and Latin America, which are suppliers of China, will be the first victims of the commercial war.
However, we do not believe that the Trump Administration is satisfied with the magnitude of the trade deficit reduction achieved so far; in such a way that the batteries of tariff increases against China, Mexico, some European countries and some Asian countries should continue. This will continue until foreign companies located in these territories and who sell their products in the United States leave the US market, either to close their doors permanently, or to move their commercial operations to other markets.
At this time, the effects of the commercial war are an exclusive consequence of the role of expectations and it is likely that the effect of these expectations will end long before the actual effects begin to appear, in fact, it is expected that certain values of type of Exchange and stock market indicators stabilize quickly despite the continuing commercial war, but always before the real effects appear.
The initial real effects of the commercial war will be felt throughout the planet except in the United States, with greater or lesser intensity depending on the case. High inflation, product contraction , unemployment and high interest rates will be a universal constant. This negative outlook will be enhanced and accelerated by new expectations that will once again depreciate many currencies and discourage investment.
The beginning of the global economic recession, as a consequence of the real influence of the commercial war, must be announced by a panic situation, such as maxi-devaluations , a sharp fall in stock market indicators or a transcendent political event, such like coups. For some time we will see how , while the world is suffering from the rigors of a major economic crisis, the United States will continue to enjoy its economic boom.
Finally, the real effects of the commercial war will reach the United States, but without being announced by a panic situation since they will enter the US economy very slowly. Little by little it will be increasingly evident that American companies will not be able to adequately meet the needs of the American consumer and the shortage-inflation binomial would be being installed for a long season in the United States with many American companies receiving fabulous profits.
The characteristics of the inflationary process looming in the United States as a result of the commercial war will be such that they will prevent the Federal Reserve from carrying out effective actions that control it. At most, policy makers will be able to choose between continuous inflation or permanent recession; since it is not an inflation created by the difference between the aggregate demand and the aggregate supply but it will be an inflation caused by the creation and consolidation of a gigantic number of captive markets governed by corporations and large American companies, or by medium or small companies that can lift barriers to entry in the markets they control.
The general discontent that results from an extremely long, if not permanent, inflationary process must activate the political channels for the end of the commercial war; if American society succeeds in establishing a partnership between permanent inflation and commercial warfare.
As we can see, US inflation will acquire such characteristics that it will be very difficult to combat it. We do not say that the entire economy of the United States will become an immense captive market, we say that a large number of specific markets will become captive markets. We do not say that in these specific markets monopolies or oligopolies will appear, we say that all the companies that supply a specific market will be surpassed by an uncontrollable demand. We do not say that the commercial war will create a new demand in some specific sectors, we say that the demand will remain intact, only that, due to the departure of foreign bidders, there will be a demand that cannot be absorbed by US bidders, pressing with this to the rise in prices in these specific markets.
In the same way, the shortage that will appear in the United States as a result of the commercial war will not be an absolute shortage , but will only be limited to the specific markets to which reference has already been made. Nor will this be a definite shortage because US companies will not stop producing, but will not have the capacity to make a quick replenishment of inventories at the time of exhaustion. On the other hand, as the North American consumer is warning of the shortage situation, he will replace the products used to buy with others with similar properties. In any case, these are elements that are part of a situation of widespread discontent.
Of course, the North American authorities can create a system of indicators that allows to detect which are the specific markets that are generating scarcity and inflation to be able to apply the corrective measures, but, given that for the first time in history a process of mass expulsion of foreign products, there is no knowledge or experience about what these corrective measures could be.
Thus, the phenomenon of permanent inflation in specific markets in the United States will appear because in these markets it will be extremely difficult for an increase in the number of bidders to meet the demand "released" by the reduction in imports. On the other hand, given that the US economy will find its potential product , it will be increasingly expensive for producers established in these markets to find the necessary elements for production. This is how the permanent US inflation will be formed by two components: one that allows to discriminate customer in a market in which demand greatly exceeds supply and another that allows to cover the increasing unit production costs.
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