Looming trade war casts ominous shadow over world economies

Staff reporter and agencies

The world is shrouded in fear of a trade war that threatens to derail economic growth and hike consumer costs as US President Donald Trump ramps up his tariff threats to top trade partners across the globe.

The European Union, a traditional ally of the United States, said it will "respond firmly" after Trump said he "absolutely" will impose tariffs on the region.

EU leaders are expected to discuss the tariffs in Brussels today in the wake of Trump's comments.

"It will definitely happen with the EU," Trump said. "They don't take our cars, they don't take our farm products. They take almost nothing and we take everything from them."

As for Britain, although it was "out of line" when it came to trade, Trump believes it may be able to avoid tariffs.

He added: "I think that one can be worked out."

Trump was set to talk with the leaders of Canada and Mexico, which have announced retaliatory tariffs of their own, but downplayed expectations that they would change his mind.

"I don't expect anything dramatic," Trump said.

"They owe us a lot of money and I'm sure they're going to pay."

The tariffs on Canada, Mexico and China, outlined in three executive orders, are due to take effect in the afternoon today, Hong Kong time.

Other US allies including Japan and South Korea also expressed concerns over the possible tariffs.

Economists said Trump's plan to impose 25 percent tariffs on Canada and Mexico and 10 percent tariffs on China - the United States' three largest trading partners - will slow global growth and drive prices higher for Americans.

Trump says they are needed to curb immigration and narcotics trafficking and spur domestic industries.

"We may have, short-term, some little pain and people understand that," he said.

"But long term, the United States has been ripped off by virtually every country in the world."

Trump's tariffs will cover almost half of all US imports and would require the United States to more than double its own manufacturing output to cover the gap - an unfeasible task in the near term, ING analysts wrote.

"Economically speaking, escalating trade tensions are a lose-lose situation for all countries involved," the analysts wrote in a note.

Other analysts said the tariffs could throw Canada and Mexico into recession and usher in "stagflation" - high inflation, stagnant economic growth and elevated unemployment - at home.

Some analysts said there is some hope for negotiations, especially with Canada and China.

It has been reported that China's initial response to the tariffs will center on restoring the "Phase 1" trade deal signed in 2020 during Trump's first term.

Other parts of China's plan include a pledge to not devalue the yuan, an offer to make more investments in the United States and a commitment to reduce exports of fentanyl precursors, reports said.

staff.reporter@singtaonewscorp.com