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How to make 1.7 trillion. dollars to disappear? The trade war is one way, according to a new report by the New York Federal Reserve, quoted by MarketWatch.
The document also confirms previous findings that despite White House claims, Americans are paying – and paying heavily – for the trade war between the United States and China.
The multibillion-dollar tariffs that Washington and Beijing have imposed on each other have reduced the market value of American companies by 1.7 trillion. dollars during the offensive, the New York Federal Reserve found in its study.
The conflict will continue to weaken investment growth for these companies by up to two percentage points by the end of the year, the study said.
The trade war is causing financial losses for several reasons, from the inefficient prices that taxes create, to the interruption of supplies, to the costly adaptations of companies to taxes, among other reasons.
The report’s authors point out that reports of the US and Chinese trade wars – usually through press conferences or political statements – provoke a sharp drop in market prices, leading to lower returns on capital and investment rates.
The study also found that political announcements lowered US stock prices in a sample group of 3,000 companies by a total of six percentage points. Their total market capitalization is 28 trillion. dollars and this 6% is equal to 1.7 trillion. dollars.
This is a disappearing value equivalent to the national GDP of Russia, Canada or South Korea, the document said.
Several findings surprise economists. One of them is related to the constant blow that the shares have suffered from the 11 political announcements for these two years. Whether Washington, Beijing or even a third country announces any intentions to restrict trade, American business bears all the costs, the report said.
Another surprise – these companies are not the only ones with exposures to China.
Perhaps the most striking finding is the long-term nature of the damage, provided that market players measure instability by days or hours, or by the short lifespan of a presidential tweet.