Thaw in US-China trade war at G20 could prove calm before new storms
US President Donald Trump told his Chinese counterpart on Saturday that he would delay imposing another round of tariffs on imports from China, allaying fears of a deepening trade war between the economic superpowers and, with it, a risk of plunging the world into recession.
Ireland would have the most to lose of any European country from a worsening trade dispute, given its status as one of the world's most export-oriented economies, according to the International Monetary Fund (IMF).
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The State also depends on US multinational companies based here for most of the €10bn in company taxes it gets each year, as well as some 230,000 jobs.
Mr Trump has pursued protectionist trade policies since his rise to power in a bid to shrink America's trade deficit and to bring back manufacturing jobs.
He has launched trade disputes with Canada and Mexico, as well as Japan and South Korea, and threatened to get German cars off American streets if Brussels doesn't buy more US goods.
Evidence is scant that his actions have boosted job creation in the United States, where the economy is closing in on a record 10-year expansion widely credited to the Federal Reserve's low interest rates and its purchase of trillions of dollars of US government debt.
The pain instead is being felt by American consumers, according to the New York Federal Reserve, which said in a recent report that the trade war with China would make every US resident $841 (€739) a year worse off.
If Mr Trump returns to the attack and imposes penalties on all Chinese imports beyond the $250bn in goods already subject to 25pc tariffs, he would take the weighted average of US trade tariffs back to levels last seen in 1947, effectively unwinding the trade liberalisation that Washington led in the wake of World War II.
Escalation of US-China trade tensions could create a global recession of a similar severity to the eurozone economic crisis, according to investment bank UBS.
"Over half of the global impact is on 'innocent bystanders', spillovers from lower US-China growth on the rest of the world (and) supply chain disruption," the investment bank said.
Damage to the world economy from such an escalation would be so severe as to trigger emergency interest cuts from the Federal Reserve, European Central Bank, the Bank of Japan and the Chinese central bank.
UBS forecasts that global equities would plunge by 20pc in its worst-case scenario.
US demands on trade concessions have evolved from a demand that Beijing shrink its trade surplus with America into a fight for technological superiority between economic and military superpowers.
Washington used its economic heft and its leading position in high-technology products to try to derail China's economic challenge, which the Trump administration charges is based on Chinese state subsidies and theft of US technology.
It has hit Chinese tech companies Huawei and ZTE particularly hard, incensing Beijing.
As Mr Trump campaigns for re-election, his anti-trade rhetoric could intensify, given this issue plays well with his core supporters.
Despite his hard-line stance, Mr Trump may find himself outflanked by Democrats on the issue.
The Democratic minority leader in the US Senate, Chuck Schumer, hit out on Saturday after Mr Trump appeared to give breathing space to Huawei. He described Huawei as "one of few potent levers we have to make China play fair on trade".
"If President Trump backs off, as it appears he is doing, it will dramatically undercut our ability to change China's unfair trade practices," the senator said.
Also, since striking a September 2018 trade deal with Canada and Mexico as a successor to the North American Free Trade Agreement, Mr Trump is facing opposition from Democrats to passing enabling legislation on Capitol Hill.
Meanwhile, an uneasy trade truce struck last year between Washington and Brussels is nearing an end. Mr Trump has threatened to impose 25pc tariffs on car imports from the EU unless the 28-nation bloc buys more US products and opens its agriculture markets.
A trade dispute with America could not come at a worse time for Ireland, because a potential hard Brexit looming at the end of October would hit the Irish economy so badly that growth almost certainly would shudder to a halt.
A recent IMF study showed that the Irish economy would be hit three times harder than Germany and worse than any other developed nation if the US imposes a blanket tariff on EU imports.
The IMF, which based its calculation on a 5pc across-the-board tariff model, forecast that Ireland's goods exports could fall by 0.67pc.
Almost 30pc of our €140bn of exports last year went to the United States.