US President Donald Trump's tough tariff policy not only "hurts" the domestic economy but also indirectly pushes major economies in Asia into crisis.
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| President Trump's tariff policies are disrupting financial markets. (Source: CNBC) |
The latest forecast by the Federal Reserve Bank of Atlanta of a 2.8% contraction in the US economy in the first quarter of the year is seen as a negative signal for Asia and the global economy. This assessment further increases concerns in the context of rising inflation in the world's largest economy.
Inflation risks with recession threaten the US
US President Donald Trump's determination to impose increasingly high tariffs on allies and rivals is exacerbating inflation risks, analysts say.
The US jobs report for February released on Friday (March 7) showed that the growth of the world's leading economy is slowing down abruptly. As consumer inflation increased sharply in January, job vacancies decreased significantly. This week, the number of applications for unemployment benefits in the US also increased.
“Data and events in the coming week could turn these concerns into a real fire,” commented Anna Wong, an analyst at Bloomberg Economics .
“Trumponomics has significant political and economic advantages, but it comes with significant implementation risks,” said Dominique Dwor-Frecaut, chief economist at consultancy Macro Hive. “For example, supporting stronger wage growth risks triggering a wage-price feedback loop.”
Managing these risks “requires a strong competition policy and an independent central bank,” Dwor-Frecaut noted. “In addition, deporting illegal migrants could reduce the labor force, reduce consumption and cause inflationary contractions if migrants do not work for fear of deportation.”
Federal Reserve Chairman Jerome Powell is also in a difficult position as President Trump demands lower interest rates, even as his trade policies — and other tax cuts — run counter to the Fed’s dovish stance.
The Fed's "helicopter money" approach to supporting consumption - a term used to refer to large sums of money printed and distributed to the public, intended to stimulate the economy during recessions or when interest rates fall to zero - is no longer considered a viable growth strategy.
The risk of US inflation has also spooked global markets, which will certainly affect demand for US Treasury securities. This directly complicates President Trump's fiscal stimulus ambitions.
“By definition, a trade war is a double whammy of inflation and recession: higher prices coupled with lower sales,” said Torsten Slok, chief economist at Apollo Global Management. “Now, tariff-induced inflation on top of slowing growth could push the global economy dangerously close to stagnation,” added Jeffrey Roach, an economist at LPL Financial.
Asia is also "worried"
As the White House leader sticks to his tariff policy, causing inflation and recession to return strongly, on the other side of the Atlantic - America's close ally in Asia - Japan also has reason to worry. Tokyo is facing a similar "dilemma" with high inflation and stagnant economic growth.
This week, the yield on Japan’s 10-year bond rose to 1.5% for the first time since June 2009. That comes as borrowing costs from Germany to Australia have also surged as governments ramp up fiscal spending to counter growth risks.
In Tokyo, Bank of Japan Deputy Governor Shinichi Uchida said rising yields make it less likely that the Bank of Japan (BOJ) will raise interest rates as aggressively as the market expects.
Japanese corporations are also "stunned" by the near-term moves of the 25% import tax that Washington applies to all foreign-made cars.
As for China, the United States' high inflation and sluggish growth could complicate the growth prospects of the world's second-largest economy for 2025, especially the ability to achieve the recently announced 5% GDP growth target for this year.
The 20% tariffs the US is imposing on Chinese goods will make President Xi Jinping feel more urgent in shifting from an investment-led growth strategy to one driven by consumption.
In October 2024, Chinese Finance Minister Lan Fo'an said that Beijing's deficit expansion was "quite large." A month later, China rolled out a 10 trillion yuan ($1.4 trillion) economic support package aimed largely at helping local governments overcome their debt burdens.
Meanwhile, the Xi Jinping administration is expected to triple the quota for special government bond sales to 3 trillion yuan ($410 billion) this year. Larry Hu, chief China economist at Macquarie Bank, said Beijing will increase the quota for special local government bond issuance to 4.5 trillion yuan ($621 billion) from 3.9 trillion yuan.
People’s Bank of China (PBOC) Governor Pan Gongsheng is concerned that rate cuts could encourage poor lending decisions. A weaker yuan could trigger defaults among some property developers as they find it difficult to repay overseas debt.
Another concern is that the internationalization of the yuan is under threat. For nearly a decade, President Xi Jinping’s government has been working to increase the use of the yuan in trade and finance. More recently, Beijing has been stepping up cooperation with the BRICS nations of Brazil, Russia, India, China, South Africa and other southern hemisphere nations to move away from the dollar-centric world order.
A weaker yuan could give Japan, South Korea and other leading Asian economies the green light to devalue their currencies to maintain export competitiveness. And the United States under President Trump is unlikely to ignore this.
If Washington concludes that Beijing is manipulating the yuan exchange rate, the White House chief could target China with tariffs even greater than the 60 percent he frequently threatened during his campaign.
On the positive side, Chinese leaders all appeared quite confident at the Third Session of the 14th National People's Congress (NPC) held last week.
At this session, the Chinese government adopted a loose monetary policy to boost consumption along with expectations of increased productivity from artificial intelligence (AI). It can be said that Beijing is ready to face the trade war with Washington.
Economist Richard Katz said that fears of inflation due to President Donald Trump's tariffs and other policies - are driving down US interest rates. "Friend or foe, all Asians are starting to feel the pain of Trump's 'America First' tariffs," said Richard Katz.
Obviously, once the world's largest economies - the growth engines - fall into a scenario of high inflation accompanied by stagnation, this will certainly pose a direct threat to the stability of the global economy.
Source: https://baoquocte.vn/khong-chi-de-doa-truc-tiep-kinh-te-my-chinh-sach-thue-quan-cua-tong-thong-trump-con-khien-cac-dau-tau-kinh-te-chau-a-dieu-dung-306893.html
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