Global trade – protectionism weighs on financial markets – economy

According to a study, the US trade policy initiated by Donald Trump and widely adopted by outgoing President Joe Biden increases uncertainty in global financial markets. According to a study by the German Institute for Economic Research (DIW), stock exchanges reacted significantly negatively to tariff increases on imports and other restrictive measures by the Trump administration up to 100 trading days. “Following the new trade policy announcements from the US government, the stock and bond markets have given way,” said study author Malte Rieth. “Only the dollar appreciates as a safe haven, which is not conducive to US exports.” Ultimately, it makes American products more expensive overseas. Bond yields also fell as a result, with slower growth to be expected.

In particular, the stock prices of US companies operating in China have been severely affected by the restrictions, shows an index compiled for the valuation. Their stock market values ​​have therefore fallen by one percent on average after further announcements of tariff increases. Only a few US industries such as utilities or export-dependent real estate companies have remained largely untouched by protectionist trade policy. The other American sectors suffered significant price losses, notably the technology sector and industry. China’s retaliatory measures also had a negative impact, which twice hit the real economy of the United States.

The US measures against China have also weighed on the major stock indexes of many US trading partners, particularly in Latin America and Europe. Joe Biden’s new US administration is maintaining its restrictive trade policy and taking a tough course, especially with regard to China. Biden wants to support the domestic industry with an expansion of the “Buy American” program. After months of negotiations between US officials and companies, he recently introduced new regulations that require suppliers to use more US-made components in their end products. Initially, the minimum share is expected to drop from 55% to 60% and then reach 75% by 2029.

The German Chamber of Commerce and Industry (DIHK) fears that this may have negative effects on German companies. “Further tightening of Buy American rules in the United States can have negative effects, in particular for the highly internationalized German economy,” said Ilja Nothnagel, member of the board of directors of DIHK. “The United States is an important foreign market for German companies, also in the public procurement sector. Existing localization requirements for US public procurement have made it difficult for German companies to participate in such markets. Exports of German companies to the United States amounted to 103.8 billion euros in 2020, making the country the largest German export market and the third largest trading partner. The US supply market is around two trillion euros.

Related Articles

Back to top button