World Trade Outlook Indicator: On the Brink of a Trade War

This week, President Donald Trump announced multiple tariffs on some of the United States most active trading partners. Temporary tariff assignments were set to expire on Thursday, and following that expiration, a confirmation that a 10 percent tax on aluminum imports and a 25 percent tax on steel imports was released. Responses were mostly negative on domestic and international fronts with the exception of a positive reception by U.S. aluminum and steel producers. The consensus is that the costs will be passed on to consumers as tariffs will reduce the amount of foreign competition in domestic markets.

Two weeks before the trade announcements, the World Trade Organization’s (WTO) “World Trade Outlook Indicator” suggested a world trade environment that was contracting slightly. The reading fell from 102.3 in February to 101.8 in March.

Six components are used to make up the indicator. All of the data points measure trading activity of different means and different products between countries. Two types of trade were to blame for the tepid reading, total export orders fell -1.4 percent, and agricultural raw material trade fell -1.3 percent in March. Electronic components was the only category that grew significantly at 1.0 percent. The other three, international air freight, container shipping, and automobile production and sales, all moved relatively flatly in March.

With the new trade policies in place and retaliations expected, the World Trade Outlook Indicator’s readings could reflect a slowdown in global trade. The United States imports the most steel from Canada, South Korea, and Mexico, so responses from these countries are expected. These could be some products that these countries impose retaliatory tariffs on:
  • Canada imports of Vehicle Parts, Delivery Trucks, and Cars are 15.6 percent of imports from the U.S. valued at $41.78 billion.

  • South Korea imports of Planes/Helicopters/Spacecraft, Cars, and Aircraft/Vehicle Parts are 11.4 percent of imports from the U.S. valued at $5.89 billion.

  • Mexico imports of Refined Petroleum and Petroleum Gas are 8.4 percent of imports from the U.S. valued at $19.9 billion. Additionally, Mexico’s imports of various electronic equipment are 11.3 percent of imports from the U.S. valued at $26.7 billion.
These are just a few of the products that could be targeted by a few of the countries in retaliation. The upcoming weeks will bring more announcements on the growing potential of a trade war.


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