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Trump trade war could bite back

Washington may escalate its trade war with China if short-term gains embolden US President Donald Trump “to double-down on his recent protectionist actions”, said Principal Global Investors.

“Tariffs on China are likely to invite retaliation, with negative impact for the US economy. But US tariffs themselves will inevitably hit some US goods,” said Seema Shah, global investment strategist, Principal Global Investors. “The nature of complex global supply chains mean that domestically built Chinese goods are likely to have components imported from several countries – including the United States.”

Although the US economy enjoyed 4.1% growth in the second quarter, a continued tough protectionist stance from Trump coupled with upcoming mid-term elections could spell trouble in future. The cost of protectionism may not yet be visible, but the corrosive impact of the trade war will eventually hit the US economy, added Shah.

The uncertainty around prospective tit-for-tat tariffs is having an effect on US businesses, which have been discouraged from implementing planned investments.

The imposition of tariffs and sanctions by Trump drew sharp criticism from German Economy Minister Peter Altmaier.

“This trade war is slowing down and destroying economic growth, and producing new uncertainties,” said Altmaier. “The past has shown that during trade wars, consumers suffer above all because products get more expensive.”

Trump has railed against China, Europe and other countries, accusing them of unfair business practices.

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