The consequences for Swiss sectors

How serious is the conjured "trade war" between the major powers? Is it just an aimless skirmish, or is the situation causing deep and lasting damage to the global trading system? Multinational companies should be familiar with rapidly changing regulations and needs.

Many companies in Switzerland are fundamentally analysing their value chain and realigning it - depending on political decisions and economic potential - and yet since 2009 the USA has been imposing customs trade regulations on foreign sectors.

Switzerland has so far succeeded in attracting important economic parts of its value chains. The Swiss market has provided positive signs for thousands of suppliers, exports have increased and there have been more solid developments in the energy and labour markets. - Nevertheless, the situation is now more difficult to calculate because of trade barriers imposed by the USA.

Now it looks as if the economic, legal and other drivers that have so far boosted multinationals to Switzerland are being overturned. And above all, where does Donald Trump ultimately want to go with his punitive tariffs and his nebulous proposals from the recent G7 meeting? Is it only "America first" or are there also other economic conditions and planning options that local managers can work with if possible?

Are globally active Swiss businesses aware of the drivers and risks that can overflow their banks in state-global developments? Current trends and assessments by trade and development experts below:

1.) Driver industrial metals
US President Donald Trump's threats to impose import duties of 25 per cent on cars from the EU, for example, have obviously put the brakes on the dollar-induced rise in the price of industrial metals. Similarly, metal prices in Asian exchanges came under pressure in the spring of 2018, and new protective tariffs on metals will soon be called for. So it's not just the US that wants to give its markets a leg up. Chinese Premier Li Keqiang, for example, announced in May 2018 that production capacities of 30 million tonnes are to be shut down in the steel industry year after year. (Source: Wallstreet online)

The Chinese aim to reduce annual production capacities by 150 million tons by the end of 2018 and to turn prices in favor of the Chinese renminbi. However, this will hardly have any impact on domestic steel production. The Chinese Republic could easily reach further record levels of steel production. Thus, not only the US, but also other forces control the world market.

China's rise to become the world's most important production location is also reflected in the use of important raw materials such as copper. Therefore, in the context of growing global demand, a systematic understanding of raw material stocks and flows is becoming increasingly important.

To date, however, no attempt has been made to map copper flows in detail, for example, and at the same time to allocate those economic sectors that are drivers of copper demand. According to a study by Fraunhofer ISI, China's per capita copper stock has increased eightfold since 1990. The copper price recently rose to a four-and-a-half-year high. Shooting into the middle of this is a weak dollar, which makes the metal cheaper in other currencies, boosting demand per se. As a result, copper has risen in price by seven per cent since 30 May 2018 alone - compared to May 2017, the price of copper has risen by over 20 per cent.

At the same time, many other factors are also influencing commodity trading: The rise of the USA as the world's largest crude oil producer; volatile oil prices. Imminent closures of (copper) mines in China and Chile; or regional strikes.

2.) Behaviour of market participants
The trade conflict between the USA and China and between the USA and the EU led the SMI to a low for the year in June 2018, but the price quickly recovered. Meanwhile, some stock market commentators tried to explain why there were hardly any panic reactions in Europe, unlike in Asia. Basically, the stock market adage "the market errs and corrects itself" is circulating. A general explanation for SMI developments is also circulating:

Investors have now become "desensitised" to the US president's uninterrupted stream of tweets. In addition, the Swiss franc, which is considered a safe haven in turbulent times, is gaining in value against both the US dollar and the euro. However, the situation looks different at the global level. Because interest rates are already at a very low level, the scope for central banks to react to a possible slowdown in growth is also limited. Some market commentators are sympathetic to Trump's tariffs. Daniel Lacalle, chief economist at hedge fund Tressis Gestion, agrees with the accusation that countries with the highest trade surpluses in decades have taken advantage of the US (see "The trade dispute is just a skirmish", NZZ, 17.6.2018).

Now the trade agreements must be revised. The US could possibly put pressure on its trading partners to dismantle their own protectionist strategies. The idea of completely free trade, which Trump expressed at the last G7 meeting, would be welcomed by some representatives of free markets. According to correspondents, however, Trump does not really believe in free trade at the moment.

After all, the world has already come a long way with tariff reduction, praises science editor Ronald Bailey in the blog of "Reason Magazine", which circulates in Washington, DC. The World Bank points out that US tariffs still average 1.6 percent - the same as in Germany, France, Italy and the UK. In countries like Canada or Japan, they are even lower.

However, the position of the USA vis-à-vis its trading partners is enormously weighty: on the one hand, its market is very attractive to other industrial nations, and on the other hand, it is less dependent on exports.