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The IMF warns that consumers will be harmed by the trade war between the US and China

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Aakash Molpariya
Aakash started in Nov 2018 as a writer at Revyuh.com. Since joining, as writer, he is mainly responsible for Software, Science, programming, system administration and the Technology ecosystem, but due to his versatility he is used for everything possible. He writes about topics ranging from AI to hardware to games, stands in front of and behind the camera, creates creative product images and much more. He is a trained IT systems engineer and has studied computer science. By the way, he is enthusiastic about his own small projects in game development, hardware-handicraft, digital art, gaming and music. Email: aakash (at) revyuh (dot) com

The tariff war that the United States and China have been waging for a year now goes a long way. In the midst of the stagnation of negotiations between the two powers, the International Monetary Fund (IMF) jumps to the scene to warn that the confrontation will negatively affect consumers and producers in both countries. And although the agency does not see an effect for the global economy at the moment, it anticipates that the escalation “can put in danger” the recovery that projected a month ago for 2019.

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“Consumers in the US and China are unequivocally the losers of commercial tension,” the IMF economists say, using data from the US statistical office as a basis. It also contradicts the argument used by President Donald Trump to defend tariffs: the body led by Christine Lagarde ensures that the revenue generated by the collection of the customs tax was “borne almost entirely by US importers.”

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Trump, both in his public interventions and in the messages that hang on social networks, attributed the solidity of economic growth to the money generated by the additional tariffs to China. The IMF insists, however, that “many of these tariffs are being passed on to the consumer”. He cites as an example the price of washing machines. Other importers absorbed part of the costs by reducing profit margins.

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Based on the trend seen so far, the IMF anticipates that a further increase in tariffs may further raise prices. The effect on inflation, in any case, will be “small” so it would not be a problem for the monetary strategy of the Federal Reserve, which has the process of normalization on hold. But the study does not rule out that the effect on prices is greater if the competitors raise them.

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Private consumption accounts for two thirds of economic growth in the United States. The New York Fed also published on Thursday an analysis in which calculates the annual cost of tariffs for households up to $ 831. That, he warns, “could create a greater distortion in the economy.” It would duplicate the impact it estimates caused in 2018, when they were activated.

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The Fund has already devoted a chapter in its last report on economic perspectives to analyzing the effects of commercial tension. The study indicated that the main losers will be its two protagonists, because uncertainty hits bites to confidence and forces companies to rethink their investment plans. That, his economists warn, could eat up to six tenths of US growth and a point and a half in China.

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Reflection in the data

Washington applies a customs tax of 25% on half of the products that it imports from China, on goods valued at 250,000 million dollars. And by order of President Donald Trump the process is underway to extend them to the remaining 300,000 million. The impact of the previous tariffs and the Chinese reply “is already evident in the trade data,” says the IMF.

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The IMF’s chief economist, Gita Gopinath, points out that “the impact on the global economy is relatively modest.” But the latest escalation, he warns, can not only affect the feeling of business and markets. It can also cause a disruption in the global supply chain and in technology exchanges. In addition, he reiterates that the bilateral deficit “remains generally unchanged.”

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The IMF observes a redistribution of trade flows, which is mainly benefiting Mexico by its trade agreement with the United States. The data of the trade balance during the first quarter show for the first time that Mexico is the main American trading partner, after the total trade grew by 3%. Meanwhile, the Chinese were reduced by 14%.

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“Imports from China fell quite sharply in the three product groups where tariffs were imposed,” the IMF economists added, referring to the three rounds of tariffs that were activated last summer. He also observes, looking at the dates, how the importers accumulated assets before the entry into force of the taxes.

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The same effect is observed on the side of US exports to China, which fell when reprisals were activated. By sectors, the variations are noticeable especially in electronic products, manufacturing, transport equipment and agriculture. The producers most exposed to the tariff battle are also those who are suffering more volatility on Wall Street.

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Once again, the IMF insists that macroeconomic factors play a much greater role than tariffs in determining the trade balance between countries. The report published in April already pointed in this direction, and pointed out as key factors the fiscal policy, credit cycles, subsidies or exchange policies. In the case of the US and China, these forces account for 95% of the change in the trade balance.

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