Trade Wars and Tariffs: How Global Economic Tensions Reshape Markets

US President Donald Trump announcing new US Tarrifs. Image source: AP

Every news outlet has been awash with the developments around tariffs and the trade wars going on between the USA and the rest of the world. The USA has imposed a universal tariff of a minimum of 10% of goods coming into the USA and the scale goes up for various countries. Lesotho has a 50% tariff imposed on them!

Firstly, a Tariff is defined as a tax paid to the government to bring specified goods into the country. Tariffs are trade barriers which increase the price of the imported goods and in turn make them less attractive compared to locally manufactured goods.

The reaction has been profound, felt across stock markets around the world, as investors divest from the markets opting to hold cash, mainly hitting companies who rely on imports to manufacture or assemble their products, or who have assembly or production facilities in other countries. Hard hit are tech companies and the automotive industry.

Rungano Nyaude (ZIBCO Board Member - Research and Advisory)

In the medium term, we can expect to see a shift in supply chains and routes, as global exporters shift target markets away from the USA. This may see increased availability and offers on some of the products in the local market as companies shift to favourable markets to bolster sales and revenue. However, this has a lead time of months and will be contingent on the prolonged timeline of the trade war as manufacturers start to feel the cost of storage of their products.

In the long run, the world order re-balances, and international trade flow settles, whether through new frontier routes and trade partners, or through the resolution of the trade war and clearance of the disruption which would have been experienced to that point, and it becomes business as usual.

The UAE as a core trading hub, although hit by a 10% tariff, would likely benefit from the current crisis as global trade shifts and more products look for a new home, flows would likely conduit through the UAE, in turn increasing availability of products in the local market.

As a business not trading or operating on a global scale like Apple or Amazon, we may see a few shifts in our supply chains in the medium term, but the impact will not be prolonged. For now, we watch the global powers engage on one of the most advanced trade wars in modern history. If we are investors on the stock markets and are still holding, a hold approach would be more ideal. The markets will recover, gains will return. But time will tell.

Rungano Nyaude

Research and Advisory

For more information please email us at info@zimbabwebusinesscouncil-uae.org