BIS Warns of ‘Perfect Storm’ for Global Economy

The comments below are an edited and abridged synopsis of an article by Tyler Durden

There won’t be a quick resolution to the US-China trade war. The feud is likely to last much longer than originally thought, extending into the second half of next year and perhaps beyond. The main reason for the protracted conflict is that neither side is prepared to appear politically weak at home, and both are ready to absorb economic pain.

The biggest losers would be farmers, users of steel, and consumers in the US. Manufacturers of all types will see businesses leave to neighbours like Vietnam and Malaysia in China, dampening economic growth in both nations and around the globe.

Perfect Storm for Global Economy | BullionBuzz

The BIS warned that the greater risk is not how many points of GDP the rising tariffs will take from the US and China, but the growing danger to globalization itself.

Reversing globalization could increase prices, raise unemployment and crimp growth, and higher tariffs would drive up US inflation and force the Fed to raise rates, driving up the dollar and hurting both US exporters and emerging market economies in the process.

Protectionism also threatens to unsettle financial markets and put a drag on firms’ capital spending as investors take fright and financial conditions tighten.

The BIS released a research paper, “Global market structures and the high price of protectionism,” that said revoking NAFTA would mean a GDP loss of $37 billion in Canada, $22 billion in Mexico and $40 billion in the US, with non-tariff trade barriers accounting for the lion’s share of the losses. Wages would also fall across North America.

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