Global Economies React to US-China Trade War with Emergency Measures and Interest Rate Cuts:

The global economy is experiencing jitters as the ongoing trade war between China and the United States heats up at a more alarming rate. Nations all over the world seem concerned about the potential impacts of inflation, changes in currency values, and twisted supply systems.

With this fear in mind, banks in different countries from India to New Zealand have lowered their interest rates, while the Korean and Spanish governments have devoted billions in subsidies to aid the affected industries.

Proactive Restricted Monetary Policies

Spain and Portugal, after being awarded with newly released spending rules, focused on granting financing schemes to manufacturers and exporters hit by tariffs from the United States. Canada countered by putting place counter-tariffs on American automobile imports and promising to spend the money received on supporting workers who are laid off.

On the other hand, the central banks of the UK, eurozone, and Switzerland plan to cut interest rates to deal with losses incurred from international trade later on in the year.

Escalation of Tension Due to Tit-for-Tat Tariffs

The US imposed a 10 percent tariff on almost every import, and China retaliated excellently by doing the same with American products, increasing tariffs to as high as 125%. They also introduced new restrictions for US businesses, diminished the value of the yuan, which inflated export growth, and controlled yuan devaluation. In support of local manufacturers, JD.com intended to spend $27 billion domestically.

Currently, more than 70 countries are racing against time to secure trade deals with the US before a deadline sets in. For example, Vietnam has proposed purchasing more American gas and agricultural products to waive any potential ESPs.

Preparing For Prolonged Disrutpion

Now, certain countries are considering adjusting border policies, setting the focus from temporary relief to long term alterations. The central bank of India stated that the escalated trade tensions are likely to hinder investment and consumer spending. Goyal urged enterprises to embrace “domestic inflation” and focus on economic nationalism by prioritizing locally manufactured goods.

There are increasing risks of global recession

Analysts at Capital Economics predict that global economic growth will plummet to 2.2% in 2025, below the level of 2.5 percent which is usually linked with a global recession. “I see the odds of a recession ever-increasing,” said Mark Carney, the Canadian Prime Minister, and announced new policies focussed on social spending along with fiscal relief to ease the blow on workers and businesses.

If the negotiations do not lead to a positive outcome, the tariffs will likely be raised again. At this point, many nations are struggling to stay economically competitive while avoiding a recession. The European Central Bank, along with the Swiss authorities, is looking into further monetary easing, which includes interest rate cuts close to zero.

The increase in economic nationalism

Due to global uncertainties, countries are implementing more industrial policies and restrictions on international trade. These actions are a result of strategic decoupling and an increase in nationalist sentiments which create an environment of skepticism about international collaborations leading to shattering an economy.