World Faces ‘Clear And Present Danger’ from Trade War Escalation

The comments below are an edited and abridged synopsis of an article by William Schomberg

The Organization for Economic Co-operation and Development has issued a warning about the risks ahead for the global economy over mounting trade tensions between the US and China, which could hit the rest of the world much harder than they have to date.

World Faces ‘Clear And Present Danger’ from Trade War Escalation | BullionBuzz
USA and China – trade war on two flags

Trade tensions are the main reason that growth in the global economy will weaken to 3.2% this year, the slowest pace in 3 years, and down from rates of about 5% before the financial crisis a decade ago.

The effect could be more severe if Trump follows through on his latest threat to hit a further $300 billion of Chinese imports with tariffs, and China retaliates again.

That kind of tariff escalation, plus rising uncertainty about a broadening of the trade war, could lop about 0.7% off the world economy by 2021-2022 (+/- $600 billion, equal to Argentina’s economy).

A full-blown trade war, combined with an ensuing debt crisis in China and a shift away from exports to drive its economy, could cause a 2% hit to China’s economy, knocking global growth further.

Other G20 nations will be urging the US and China to step back from the fight, chief among them Germany and Japan, which have much to lose from a long trade war.

For now, the effect of the trade tensions is being felt mostly among manufacturers. Consumers, buoyed by low unemployment and low inflation in many parts of the world, have shown little sign of alarm at the row between Washington and Beijing.

Global trade should normally grow at double the pace of the world economy, but is expected to lag in 2019, boding ill for investment by companies.

That investment would normally drive productivity growth, which is important for long-term prosperity. Living standards for many workers in rich countries remain lower than before the financial crisis of 2008-09.

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