Trade war between China, U.S. a risk for Dutch economy: Planning office

A trade war between China and the United States poses a risk to the Netherlands' economic stability and growth. The Bureau for Economic Policy Analysis (CPB) states this in the Financial Marktes Risk Report 2024, which the CPB draws up annually at parliament’s request.

Although the Dutch economy is in “good average shape” after the coronavirus pandemic and the energy crisis, it remains sensitive to “major economic shocks,” the CPB said. However, Dutch households and companies can absorb potential blows better than a few years ago.

An important reason for the CPB’s warning is the increased import duties that the United States introduced in May on Chinese goods like electric cars. These may indicate an escalating trade war between the two superpowers, which could cause more bankruptcies in the Netherlands because our economy has to make an “expensive shock-by-shock adjustment.” Disruption of production capacity and supply chains can cause price increases.

What also plays a role is the high degree to which the Netherlands is exposed to economic risks abroad because it has one of the largest foreign investment positions in the world. Dutch pension funds, for example, invest a lot abroad. If, together with households, they make a loss on their investments abroad, there is a risk that they will no longer be able to repay their loans in the Netherlands. “When foreign assets become less valuable, this hits investing Dutch people directly in the wallet,” the CPB wrote.

However, the majority of Dutch investments abroad are made in “relatively safe” countries like the United States, the United Kingdom, and Germany. The Netherlands has approximately 2,500 billion euros invested there. There is less investment in “risky” countries like China and Russia.

But the risk of suffering losses on foreign investments remains real. In contrast to the Netherlands, many other countries have “significantly increased” debt positions which endangers economic stability there. Due to the large foreign investments, the Netherlands is still “relatively heavily exposed.”

The large investment position in the United States is a sensitive issue. In the long term, a decline in the dollar cannot be ruled out, which could cause a decline in the value of the Dutch investment position.