What Happened This Week in the World Economy and What It Means

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We might now have ourselves a veritable trade war, as the U.S. and China are set to enact crippling duties on almost $300 billion total in each other’s goods.

Central banks continued to weigh pressures to normalize policy versus cracks in the global economy. And a debate is raging about how long the good times can roll.

Here’s our weekly wrap of what’s going on in the world economy.

Tradewinds Blowing

The U.S. and China announced tariffs on $200 billion and $60 billion in each other’s goods, set to take effect next week and furthering their divide. President Donald Trump is still playing up the potency of the action, while American consumer might be in for a bigger hit and China could cancel talks if the latest round takes hold. It is still looking long-term, eyeing perceived U.S. plans to thwart its rise. China’s holdings of U.S. Treasuries dropped to a six-month low in July, though officials promise the nation won’t weaponize its currency. China is aiming to provide relief for tariff-battered consumers with plans to cut import duties for goods from other trading partners.

In trade-reliant Asia, keep up on five flashpoints to watch, as well as how outflows could make the burn worse for Southeastern economies, according to Bloomberg Economics. On the up side, some industries in the region already are benefiting as companies redirect orders from China.

Central Bank Watch

The Bank of Japan, weighing a high-stakes position as a super-accommodative developed economy, kept its policy stance, which is a big help to newly re-elected Prime Minister Shinzo Abe. Norway, however, took the plunge with the first interest rate increase in seven years. The central bank flagged it will raise again at the start of 2019, even as it unexpectedly lowered its longer term projections. Among those laying the groundwork for eventual policy tightening are Hungary and  Thailand, which both held off this week. Brazil’s central bank, which kept its rate at a record low, is weighing feeble growth and inflation versus a currency sell-off that threatens to boost price growth. In China, the central bank’s headache is a trillion-dollar money-market fund that is boosting borrowing costs and threatens to curb credit flows.

Zooming Out

For all the global tensions, Goldman Sachs economists are bucking consensus with a call that a U.S. downturn only has a 36 percent chance of occurring in the next three years. Some data in their favor: the world’s richest economies are enjoying their biggest pay raise in a decade. The Fed just sold the last of its Bear Stearns assets, marking the end of an era. Residents of developed countries aren’t so convinced that the good economic times will stick around. And for better or for worse, robots will probably take over half of human work tasks by 2025, according to a World Economic Forum report.