President Trump is shaking up the status quo of global politics. His main game has been to reverse the unfair advantage he believes China has had in the US economy. China has amassed an almost $30b trade surplus from net exports to the US, exporting everything from Christmas lights, t-shirts, and steel. His laser like focus on China has seen him levy tariffs of $50b, and now upping the ante to $200b.

European car makers (more specifically from Germany) have also been caught up in the crossfire, with the EU threatening to do the same to US exported cars. And at the heart of all this, is a decent threat to the German economy. Germany’s top trading partner in 2017 was China. The US/China trade spat is not just about China, it also has a direct effect on the European economy (with Germany the largest economy within the block). The other point is the US will (in a lot of cases) continue to import goods, which means everyday Americans will instantly be paying 25% more (depending on the items). The instant extra impost increases inflation, which causes policy makers to lift interest rates, which in turn strengthens the US Dollar. A stronger USD hurts the US economy and emerging economies like Turkey, and Argentina. Both of which have used foreign dollars to fuel their economies.

Recently the Turkish lira fell 33% against the USD, making it harder for Turkish companies and government to make USD denominated repayments. Argentina is also struggling. Last week they upped their official cash rate to 60%, as the peso fell 16% against the USD. Inflation is around 30%, leaving the government in such a bind, that they are considering taxing their exports. It beggars belief that anyone would want to tax something that is earning hard currency (US Dollars) and helping the domestic economy with jobs.

Something that sounds very specific like a US/China trade dispute will have much bigger implications for global economic growth.