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28 May, 2019 10:42

US-China trade war could cost global economy $600 billion

US-China trade war could cost global economy $600 billion

Whoever wins the bitter trade row between the two biggest world economies, the US or China, the consequences are set to spread far beyond… erasing up to $600 billion off global GDP, according to a Bloomberg forecast.

Trade representatives from Washington and Beijing had been soothing the markets as they indicated that they were on the verge of a deal, before the trade war reignited two weeks ago. After the two sides introduced tit-for-tat tariff hikes, the trade conflict then turned into a technological war as the Trump administration blacklisted Chinese telecom giant Huawei and has been pressing its overseas allies to ditch the company’s 5G equipment.

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Already-flaring trade tensions still have room to escalate. For example, the tariffs may be further expanded to all US-China trade, dragging markets down. Such a scenario would cost global GDP some $600 billion when the impact reaches its peak in 2021, Bloomberg economists Dan Hanson and Tom Orlik warn.

Even without the trade conflict, output in China and the US would slump by 0.5 percent and 0.2 percent respectively, while the global output would be down around 0.3 percent in around two years.

However, the spat is ongoing and no side is willing to surrender its positions, with each hoping that the rival finally makes concessions. While US President Donald Trump reiterates that the US is in “a very good position” against China, Beijing says it has some trump cards of its own and is indicating that it is not willing to compromise its “core interests.”

The heightened tensions may result in tariffs on all bilateral imports instead of groups of products. Given the possibility of tariffs increasing to 25 percent, output in the world may decline by 0.5 percent, while US and Chinese output may drop 0.5 percent and 0.8 percent, according to the analysts.

Financial markets, already sensitive to the US-China trade war, are expected to be dragged down as a nightmare scenario includes a 10 percent equity market crash, that would eventually hit consumption and investment, in addition to increased tariffs. This would lead to 0.6 percent decline in global GDP, while China and the US would lose 0.9 percent and 0.7 percent respectively.

Many analysts have already predicted that global trade may fall victim to the tariff game. Additional US levies on Chinese goods exacerbate“the uncertainty in the global trading environment” and further slow growth, Moody’s said earlier this month. The IMF also sounded the alarm about the consequences of the trade tensions, warning it will “jeopardize” 2019 global growth, undermine confidence, and raise prices for consumers.

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