'Butterfly effect' of U.S. trade bullying far-reaching

2019-06-28 16:20:35 Xinhua Gu Liping

Argentine farmers have one of the good harvests of soybeans in the history of the country this year, but they are in no mood to celebrate in view of the declining prices, a rippling effect economists believe is, in large part, caused by the U.S.-initiated trade war with China.

The sensitive interdependence of international trade is easily broken by the U.S. tariff stick, which Washington wielded at many. The ensuing "butterfly effect" is far-reaching and causes pain.


For Guillermo Abatedaga, a soybean grower in Argentina's central province of Santa Fe, the bumper harvest does not make him happy for too long. He soon felt the bite of tensions in the international trade arena.

Argentina's soybean prices face a 15-percent decline, according to Agustin Tejeda Rodriguez, chief economist of the Buenos Aires Grain Exchange, noting that trade frictions between China and the United States are listed as the foremost factor in the price lowering scenario.

Washington last year imposed additional 10-percent tariffs on 200 billion U.S. dollars' worth of Chinese imports, and recently raised them to 25 percent. Its latest threat is to slap more punitive tariffs on more than 300 billion dollars' worth of Chinese goods, which further heightened the tension.

China responded by announcing that it would raise tariffs on around 60 billion U.S. dollars' worth of U.S. products.

Tariffs are like invisible barriers, and will benefit no one, said Abatedaga.

The plunge of the soybean prices worried him and many other soybean growers, who keep their stock, waiting, or better say, betting on an outcome that may end the crunch.

But long-term storage of soybeans would affect their quality and increase costs, warned Marcos Maniado, manager of a collection plant Paloma Cereales in Rosario, a city of Santa Fe located 300 km northwest of the capital Buenos Aires.

"Soybeans are much cheaper ... the income of Argentine producers is affected," said Julio Calzada, director of Information and Economic Studies of the Rosario Board of Trade (BCR), a non-profit association.

Worse still, by-products of the soybeans made by the United States are grabbing market share which Argentina used to hold, said Calzada.

"U.S. oil mills buy the soybeans at a lower price. They grind it and turn it into soybean flour. That flour enters European markets, where Argentina sells 30 percent of its total soybean flour," Calzada said.

The current prices of soy derivatives are also declining, according to the BCR, which led to significant losses to Argentina as the legume in the form of grain, flour and oil accounts for about a third of the country's total exports.


"The year 2019 will be more stressful for the global automotive industry than during the global financial crisis in 2009," said Ferdinand Dudenhoeffer, director of the German CAR Institute, expressing worries about the impact on the car industry by the trade tensions provoked by Washington.

Global sales of new cars are expected to drop from 83.7 million in 2018 to approximately 79.5 million in 2019, according to a recent study by the CAR Institute.

The U.S. government suggested earlier this year that European autos, especially German autos, are a threat to the country's national security. Washington has threatened to impose a 25 percent tariff on auto parts and cars imported to the United States.

According to some car experts, the economic uncertainty arising from the U.S. tariff threats are among big worries for the industry. Widespread discussions have been held about the negative impact on European cars once Washington raises tariffs.

The ongoing international trade conflicts and the weakness of world trade weigh particularly heavily on Germany's internationally oriented manufacturing sector, said Oliver Holtemoeller, vice president of the Halle Institute for Economic Research in Berlin.

In Germany, where the car industry is the backbone of the economy, almost all big brands, including Volkswagen, Mercedes-Benz, Audi AG and BMW Group, witnessed year-on-year global sales losses in the first five months of 2019.

Spokespersons of BMW Group and Audi AG told Xinhua that it is free trade that made their successes, calling for free and fair trade relations.


Zakary Pashak, founder of Detroit Bikes, a bike company in far western Detroit of the United States, said that as the only bike frame manufacturer in the United States and one of not so many that have an assembly line, he suffers less from the U.S.-China trade tensions, at least less than his competitors.

His company, unlike most in the U.S. bike industry, doesn't import completed bikes from China, whose tariffs are now as high as 36 percent.

Still, he has to bear extra cost as long as he imports Chinese spare parts, including rims, spokes and tires, for assembly in his factory in Detroit.

"I pay the tariff and that means that my prices go up and my customer pays me more. So indirectly my customer pays the tariff. So it's a tax on American consumers," Pashak said.

The tariffs are not helping create jobs in the U.S. bike industry but only forcing businesses to look for alternative sources, including Cambodia, which would contribute to job creation in those places instead of the United States, Pashak said.

What is even more noteworthy is that it would take years, along with huge investment and great attention, for those alternatives to be able to make as good products as China has been doing for decades, he said.

Excluding China is not a feasible option, he said, adding that China has to be part of it if he wants more business success in the future.

"It's the most important place in the global supply chain," Pashak said.

The butterfly effect is rippling around, and uncertainties are growing. Individual investors in South Korea are suffering losses amid the global stock market rout. Japanese companies, too, are getting hurt, as the trade tensions seriously disrupted the industrial chain.

"With the doctrine of 'America First,' it seems that any country and any sector could become an easy target at any time," said Zhang Ming, Chinese ambassador to the European Union.

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