Over the past few months, the IMF has warned that a trade war between the US and China risks making the world a “poorer and more dangerous place” in its latest assessment of the global economy.
As a result, the IMF has lowered its forecast for global growth for this year and next.
It said that a full-blown trade war between the US and China would put a significant dent in any economic recovery. Maurice Obstfeld, the IMF’s chief economist said further trade barriers would hit households, businesses and the wider economy.
“Trade policy reflects politics and politics remain unsettled in several countries, posing further risks,” he predicted.
Most recently, China announced new trade tariffs on $60bn of US goods, including products such as liquefied natural gas, produced in states loyal to the US President Donald Trump.
What are the risks to global growth?
Global economic growth is now expected to reach 3.7% in 2018 and 2019, down from the IMF’s previous prediction of 3.9% in July.
It said that risks to the short-term outlook had “shifted to the downside”.
Downgrades to global growth also reflected predictions of a slower expansion in the Eurozone as well as turbulence in a number of emerging market economies.
Crisis-hit Venezuela is expected to enter its sixth year of recession in 2019, with inflation predicted to hit ten million per cent next year. Argentina, which recently agreed an IMF bailout, is also predicted to see its economy shrink in 2018 and 2019.
How bad could the trade war get?
The US and China’s escalation of trade tariffs is expected to hit growth in both countries in 2019, when the boost from President Trump’s sweeping tax cuts will also start to wane.
The IMF warned that the world faced a permanent hit to growth if the US followed through on a threat to impose a 25% on all imported cars, and global tariffs hit business confidence, investment and borrowing costs.
In this worst case scenario, the US economy would take a significant hit, while economic growth in China would drop below 5% in 2019, compared with a current prediction of 6.2%.
Any slump (or rise) in the US takes roughly 6-12 months before it hits UK shores, meaning we can expect a delayed impact here.
US trade policy seems to be shifting by the day as a result of Donald Trump’s presidency and his stop-start and threatening style of diplomacy, so it’s difficult to see what the outcome of US tariffs on Chinese good will be on the global economy, but tariffs never have a positive impact.
If you have been affected by a downturn in trade recently, and fear for your businesses’ future for whatever reason, contact us today. We can probably help. Or we will certainly know someone who will.