Modern economic reports indicate that financial markets may reduce the danger of the trade war that US President Donald Trump ignited, amid cautious optimism in Wall Street markets.
Although Mexico and Canada obtained a month’s postponement before imposing definitions of 25%, this truce may increase the state of indolence and not being prepared for the possibility of a comprehensive commercial war, according to a report published by the Wall Street Journal.
Market optimism and exaggerated confidence
Despite the increasing fears of a global trade war, financial markets have not witnessed severe fluctuations after Trump announced his new definitions. The Standard & Poor’s 500s yesterday, Monday, decreased by 0.8%, while the European Stokes Index fell 0.9%, but the effect remained limited.
The data indicates that the shares of companies directly affected by the definitions, such as Ford and the General Motors, whose cars are manufactured in Mexico before selling them in the United States, did not decrease significantly, while the Canadian dollar and the Mexican Pezo regained some of what he lost after the announcement of the delay.
The report says that the investors at Wall Street see in Trump’s threats just negotiating tactics to extract concessions on issues such as illegal immigration and drug smuggling, as one analyst stressed that “the markets have not yet absorbed the real repercussions of these definitions.”
Trump’s policies are getting more extreme
Economists believe that Trump’s current commercial policies are much more extreme than those imposed during his first term, as the focus was then on unfair trade and national security practices, with definitions imposed on China and some sectors such as steel and aluminum, in gradual doses that allowed companies to adapt.
Now, if the targeted countries refuse to make concessions, the rates of US tariffs may reach their highest levels since the 1930s, which may lead to slowing economic growth and increasing inflation, as well as disrupting global supply chains that have already proven its fragility.
Canada responds strongly amid a rare political consensus
Despite its internal political crisis, Canada responded to the American threats to unify its ranks, as the report showed that there is an unprecedented political consensus between the Justin Trudeau government from the left of the center, and its opponents from the conservative right.
Prime Minister Ontario Doug Ford, who was previously seen as close to Trump, decided to take revenge measures, such as removing alcoholic drinks in the United States from local markets, and canceling a high -speed internet contract with Elon Musk.
https://www.youtube.com/watch?v=7rb2hc52rky
Functions on global markets
According to the report, American producers may face long -term repercussions as a result of this protective policy, as consumers in the affected countries may turn into local or European alternatives.
The report adds that Britain, after its exit from the European Union, faced similar challenges, as the uncertainty over long trade negotiations led to a decline in investments in the business sector, which may be repeated with the United States in the event of an escalation of the trade war.
Are there possible economic benefits?
Some economists believe that customs definitions may have long -term benefits if they are selectively applied to support local production, as happened in some Asian countries in the twentieth century.
For example, the United States can impose definitions to protect the electric car industry, as China has previously done, which may enhance its competitiveness globally. But at the same time, experts warn that comprehensive protectionist policies often lead to counterproductive results, as happened in Latin America in the 1950s and sixties.
From “America first” to “definitions first”?
The newspaper notes that Trump’s commercial policies lack a clear economic vision, as imposing large -scale definitions without specific goals may lead to industrial stagnation instead of stimulating the economy.
The report adds that investors in the financial markets may unintentionally contribute to the escalation of the crisis, as their ignorance of the possible repercussions may encourage the US administration to take more strict steps, which increases the risk of a global trade crisis.
With the escalation of American economic protectionism, it is increasingly concerned that financial markets reduce the seriousness of the situation, amid excessive optimism that definitions are just a negotiating tool.
But the reality indicates that the trade war may turn into a real crisis if the affected countries are not able to find alternatives, which may lead to a wave of global economic instability.
The most important question remains: Can the markets adapt to a world led by the “definitions first” policy?
