Fire on your own: US duties have brought down the economies of the West
Japan's economy underwent a sharp contraction in the third quarter of this year. The country's GDP has fallen due to US duties, which have caused serious damage to the world's third economy, which is mainly export-oriented. But a similar picture, albeit not so dramatic, is now being observed in some other G7 countries. How the duties named after Donald Trump affected the economic health of the collective West — in the Izvestia article.
Japan under water
Japan's GDP in July–September, according to the latest estimates, decreased by 0.4% compared to the previous quarter. If we recalculate these figures for the whole year, we get about 1.8%. This decrease, although it turned out to be less than analysts expected, occurred for the first time in a year and a half, which underscores the urgency of the situation. Most importantly, the recession occurred at a critical time when the country is awaiting the unveiling of new government spending plans and the Bank of Japan is considering raising interest rates.
The decline was largely caused by a decline in net exports of goods and services caused by uncertainty surrounding the duties imposed by Trump. By the way, in the previous quarter, immediately after Trump announced the duties on Liberation Day, exports increased sharply, as companies increased supplies to the United States proactively.
In the end, Tokyo and Washington reached a deal with a reduced duty of 15% on Japanese exports (compared with the threatened level of 25%), as well as with Japan's commitment to invest in the United States in the amount of $ 550 billion. A number of exceptions have been made from this list, and 15% look relatively tolerable, but it is still significantly worse than it was in the period before the tariffs.
Donald Trump and Sanae Takaichi
Now Japan's financial policy will take this fact into account in its calculations. For the first time in a long time, inflation is ramping up in the country, which makes us think about raising rates. But in such a negative environment, the tightening of PREP can be postponed, which can lead to additional unpleasant consequences for consumers. If the Japanese government tries to rely on exporters and a weak yen (to compensate for the effect of duties), this may cause a new wave of anger from Washington. In the 1980s, a weak yen already caused a sharp reaction on the other side of the Pacific Ocean, which led to the signing of the Plaza agreements, which literally forced Tokyo to strengthen its national currency. As they say, the more changes there are, the stronger everything remains the same.
The German multicrisis
Japan is not alone in its problems with economic growth amid new US tariffs. Take, for example, Germany, where GDP growth in the third quarter turned out to be zero. This is after a 0.3% decline in the previous three—month period. Germany came close to another recession, but such a weak indicator over the past six months hardly gives reason for optimism.
Initially, it was expected that the effect of the duties could have affected Germany earlier, and a "rebound" was expected in the third quarter, albeit a small one. But it didn't happen. Industry data shows the continuing plight of the industry, where one production is declining after another, and some are shutting down altogether. Unemployment, which is not a very common problem for Germany (this is another sign that unites it with Russia, in addition to low public debt), is now at a ten-year high.
Of course, most of the difficulties faced by Germany are long-term and are related to the decline in productivity that began in 2019, the loss of Russian energy resources and the market, as well as increasing competition with China, with which German businesses increasingly occupy the same niche. But the 15% duties imposed on the entire European Union certainly add fuel to the fire.
The situation in the UK is not much better. GDP there grew by 0.1% in the third quarter. For the island state, as part of the "special relationship" with the United States, duties are set at a minimum of 10%, but this did not help the kingdom. It is characteristic that the manufacturing sector in the country has decreased by half a percent over the specified period. The final growth was achieved only because the share of industry in the UK is almost the lowest among all developed countries.
The positive growth in the United Kingdom is maintained solely due to the constant population growth caused by mass immigration. GDP per capita has been stagnating or even declining in recent years. In some ways, the situation is even worse than in Germany.
Finally, Italy also experienced zero growth last quarter. And for this country with a special emphasis on industry and exports, duties also proved to be extremely painful. The American market is extremely important for Italy, given the close ties between the states, including due to the huge Italian diaspora in the United States. Now, economic ties are weakened, and Italians will have to try to compensate for the declining incomes at the expense of other markets. Again, do not forget that Italy's access to the Russian market is suffering due to sanctions.
China and India are fine
One of the rare exceptions to the general rule was France, where GDP grew by 0.5% in the last quarter. Interestingly, this was largely due to exports, which increased by 2.2%. However, how long-term this rise was remains to be assessed: some conclusions can be drawn only in a quarter or two. In the meantime, positive economic news may partially sweeten the pill of the French political crisis unfolding in recent months.
As a result, it can be stated that at the moment, the main damage from the duties imposed by Donald Trump has been suffered by the United States' closest G7 allies. Despite the extremely bellicose rhetoric against China and the dire warnings against India (in both cases, duties were set at a much higher level compared to Japan or the EU), the effect on the situation in the national economies of these countries has not yet been felt. China's GDP rose by 4.8% year-on-year, while exports remained strong. However, it is too early to talk about the "uncoupling" of the Chinese and American economies. Rather, Chinese goods have simply found workarounds.
As for India, it continues to break records — in the last quarter, GDP grew by 7% at once. These figures are already approaching China's results from 20 years ago. Apparently, tariffs do not have a very strong impact on the development of the country so far. On the other hand, exporters may well "shrink" in price in order to maintain a strong position in the American market.
In the coming weeks, the US Supreme Court may decide the fate of the "Trump duties." If the political consequences of the judge are to some extent taken into account, the damage suffered by America's traditional partners, as well as the extremely modest effect on everyone else, including competitors, may tip the scales in favor of tariff cancellation. However, this does not mean that they will not return in one form or another.
Переведено сервисом «Яндекс Переводчик»
