What is it about?

Has the digital economy really become the modern economy? As the trade tensions between the US and China threaten to escalate, global repercussions are not only being felt in respect of reverberating lower interest rates in other jurisdictions such as New Zealand, Thailand, India and the Philippines, but also a re positioning of major trading allies – as the former NAFTA (and now USMCA) partners, Canada and Mexico, have displaced China from its trade relations rank with the United States.

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Why is it important?

The tariff hikes appear to be taking their intended effects – probably discouraging domestic producers from relying on assembly chains in China and relocating these to jurisdictions not impacted by the imposed tariff hikes. However, it appears that some measures are being relaxed given the potentially short term devastating effects for domestic producers – who eventually may have to pass greater proportion of costs to consumers. This is reflected by the current decision to withhold/delay some tariff hikes, a so called “Tactical Tariff Retreat” such that consumer spending is not impacted around Christmas the period.

Perspectives

It is evident that other big players - economically - in terms of their global impacts on central banks - as well as monetary policies (and accommodating macro prudential policies), have emerged over the years. ... On the other hand, a currency war also appears to be threatening and impacting global stock markets – as one party seeks to devalue its currency as a means of mitigating the impacts of imposed tariff hikes… Following a period of turbulence and vulnerabilities, recently, the global stock markets calmed following relief that the currency devaluations had not significantly crossed traditional thresholds. To sum it up, the current ongoing trade wars are not only impacting levels of uncertainty in the global financial markets; But also monetary policy stances; Possible consideration of further accomodative policies which include macro prudential tools; Interest rate adjustments in other jurisdictions; as well as Fears of retaliatory responses – as previously highlighted, the use of currency devaluations

Prof Marianne Ojo
Northwestern University

Read the Original

This page is a summary of: Strategic Economies and Alliances and Their Impact on Economic Outcomes, IGI Global,
DOI: 10.4018/978-1-5225-4131-8.ch001.
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