The trade war between China and the United States is making headlines in the financial media. This conflict influences Dutch fruit and vegetable exports in all kinds of ways. This is the conclusion Joost Derks of Dutch financial institution, the Nederlandsche Betaal- en Wisselmaatschappij, comes to in his column.
The American president, Donald Trump, keeps stirring up that country's trade war with China. On Friday, 23 August, he announced that, on 1 October, import tariffs on $550 billion of Chinese goods will increase by 5%. This hike follows a package of other tariff increase which will come into effect on Sunday, 1 September.
As a counter-move, China had earlier announced an import tariff on all manner of American goods. Neither country is an important export destination for the Netherlands. They also lay thousands of kilometers away. Despite this, this trade conflict does have a very real impact on Dutch floriculture and plant companies.
The trade war threatens to bring a halt to America's economic growth. Businesses there spend a lot of money on Chinese goods. Trump's unpredictable behavior is causing uncertainty in the financial sector.
In the first half of the year, the US' economic growth was still above the three percent level. The financial news agency, Bloomberg, held a poll. This shows that economists are expecting a growth of less than 2% in the current quarter.
A third of those questioned think the United States will be plunged into a recession within a year. And when America sneezes, Europe gets a cold. Take, for example, the 2008 American credit crisis. This crisis quickly turned into a European debt crisis.
Beware of a recession
A slowdown in Europe's economic growth is bad for the fruit and vegetable trade sector. It is, of course, not a given than a recession is looming in the US. The American Central Bank recently lowered interest rates a little. It is hoped this will boost the economy.
Jerome Powell is the chairman of this Federal Reserve. He says he sees no reason for a further change in interest rates. He repeated this vision at the end of August. This was during the annual meeting of central bankers, held in Jackson Hole.
Trump did not appreciate this remark. He wondered, aloud, whether Powell might not be a bigger enemy of the American economy than Xi Jinping, the Chinese premier.
Trump would prefer Powell drastically reduce the interest rate. This would boost the economy, but the dollar would lose ground. This is because financial parties are looking for a currency with a more attractive interest rate - in the same way as some people are always looking for higher interest rates when saving money.
The lower dollar improves American businesses' competitiveness. A falling dollar usually leads to an increase in the currency in particularly emerging countries. This increase is a disadvantage for countries that import goods from places like Ethiopia, Kenya, and Colombia. This is, however, an advantage for others. In particular, those businesses and countries that compete with companies from dollar countries.
More war talk is expected from Trump. In anticipation of this, it can do no harm to accurately identify the risks and opportunities that could arise on the foreign exchange market as the trade conflict heats up.