Just when you thought the warnings about the still newly unfolding trade war could not get any more poignant, the EU has come up with one of its own. This past week, the European Union decried that the worldwide trade war is imminently going to get worse, with the rules-based system of trade stepping back in time to one where the stronger impose their wishes on the weaker nations.
This growing global trade war which is now threatening to spiral out of control into a no-winners, many losers scenario is threatening to overturn the global economic growth story touted so loudly just last year. It is a telling reminder of why you need a gold IRA today. It’s time to look at what gold goes in an IRA now before prices run away on you with the escalating trade barriers getting worse almost by the day.
EU Delivers An Uncharacteristically Stark Verbal Warning on Trade
What was supposed to be only a secretive internal memo being circulated among member state governments of the European Union became mainstream news when someone leaked it to media conglomerate Bloomberg this past week. The draft crafted by the European Commissions (that manages the EU block’s trading policies) argued that:
The heated arguments between the United States and its closest allies and trading partners will only escalate “in the coming months, as more unilateral measures are threatened and imposed, leading, in some cases, to countermeasures, or to mercantilist deals.” Our world will revert to “a trading environment where rules are only enforced where convenient and where strength replaces rules as the basis for trade relations.”
Naturally the EU has a great deal at stake and several reason to be so concerned. Their entire economic model for the block is based on exports. This has now been materially threatened with devastation by U.S. President Donald Trump who is busy attempting to reduce the U.S. trade deficit at any price. The acceptable cost to the President looks like it may include the destruction of all meaningful global trade rules.
Not satisfied with the punishing tariffs on both aluminum and steel imports (from European countries like Germany and France), President Trump is now seriously threatening their enormous and critical auto industry by looking at a ruinous 20 percent tariff on European cars. This would undoubtedly equate to a crippling blow against the auto industry of the EU, Germany’s largest export product and a significant one in France and Italy as well.
The EU’s Feared Three Primary Drivers of the Imminent Global Trade-ageddon
According to this internal memo of the EU, there are three primary issues driving the imminent global trade-ageddon. These include:
- Hostile one-sided decisions taken by the United States in targeting foes and friends alike with punishing tariffs
- Gaps in the global trade playbook that are now “leading to distortions, many of which [are] associated with non-market policies and practices in major trading nations, that the WTO does not seem able to address adequately”
- The American choice to oppose WTO Appellate Body members that are the arbiters in global trade disputes
The EU memo was particularly fearful of what this last point would lead to, with their observation:
“As more appellate body members leave office while the new appointments are being blocked, the dispute settlement system will soon fall into paralysis, rendering enforcement of the rules impossible. That would equate to a 20 year step backward in global economic governance.”
The EU is preparing for a major summit on topics including global trade this week. The organization agrees with the United States that the existing trading enforcement system is full of shortcomings on overseeing the world trade order. The difference is that the Europeans are busy crafting proposals to change outdated and ineffective World Trade Organization rules in an effort to stave off what they fear will soon be the untimely demise of the venerable organization.
Over the course of this trade and migration summit in Brussels from the 28th to the 29th of June, the globe’s biggest trading block leaders plan to invite “the commission to propose a comprehensive approach to improving, together with like-minded partners, the functioning of the WTO in crucial areas.”
The chart below shows that the U.S. is hurting not only other friendly allied nations of the world with these policies now, but more importantly its own economic growth:
The growing trade riff between the United States and the entire rest of the globe (all at one time) now risks a significant slowdown in the once-roaring U.S. economy. It is the next round of tariffs being discussed presently that threaten to take a noticeable chunk of of the country’s envied GDP( if the administration implements them). Chief Economist Peter Hooper of Deutsche Bank AG located in the New York City regional office argued that:
“It’s going to be more noticeably painful.”
At the moment, Hooper only fears that the U.S. economic growth of three percent will decrease by .1 percentage points based on the currently implemented tariffs. With the new 10 percent on another $200 billion worth of Chinese imports and another 20 percent levied on European auto shipments, the effects increase to from .3 percent to .4 percent. This would only be the beginning of the impacts if the rising tensions spill over into business, consumer, and investor confidence much more than they have so far.
Chief Economist Mark Zandi of Moody’s Analytics Inc. opined that the impact will be a solid .3 percentage points taken off of U.S. forecast GDP growth:
“It really dings the economy but certainly doesn’t undermine it.”
U.S. markets swooned an eye-watering 400 plus points on Monday in the wake of the wiped out Asian markets from Sunday night as the trade tensions only ratcheted up over the weekend. Even U.S. central bankers have begun to pay attention to the rising crisis. Fed Chairman Jerome Powell argued in his June 20th remarks that Fed officials have started to worry that firms are delaying investment and new hiring until further notice as they wait to see what will happen next. Fed Chairman Powell admitted that:
“Changes in trade policy could cause us to have to question the outlook.”
The central bank has good reason to worry about the escalating tit for tat trade disputes. The ongoing trade war will probably increase inflation even as it dampens growth. This leads to a dreaded concept not witnessed in four long decades: stagflation. Yet Trump administration officials are still downplaying the consequences of a trade war. Commerce Secretary Wilbur Ross claimed in his Bloomberg interview on June 21st that:
“Anyone who thinks the economy is being wrecked doesn’t know what they’re talking about.”
Yet it is a well-established fact that U.S. exports equaled around 12 percent of all GDP in the U.S. for 2016. This compares to 42 percent for the European Union and 20 percent for the Chinese, according to data from the World Bank. Beijing may have some policy choices it can carry out to reduce the affects of these trade struggles, but Europe remains far more vulnerable, per Zandi. The benchmark interest rates of the EU are currently at zero percent and so can not be appreciably lowered anymore. This leaves the Europeans hoping that the euro would decrease in value against the U.S. dollar.
Regarding how long until we reach the point of no return in the global trade war and the U.S. economy, Chief U.S. Economist Ellen Zenter of Morgan Stanley warned that it “would be a tipping point” for the world economy when Trump moves forward with his threatened tariffs against $200 billion in additional Chinese goods and the 20-25 percent tariff on all imported cars.
Gold protects retirement asset values in times of financial chaos and market crises. This is why you need to invest in gold now. Today is the time to start thinking about how to invest in gold and the Gold IRA rollover rules and regulations while there is still some breathing room space and time left.