Trade war fallout could reduce growth by 1pc
A return to tariff hostilities between the US and China could cripple prospects for global demand in 2020
The Us-china trade war remains the biggest threat to global growth, as economists fear the uneasy truce between the two biggest economies could collapse with calamitous results. If it does flare up again, global growth could be cut by 1.3 points next year, said Jamie Thompson at Oxford Economics. A tough stance on China could be a key part of the US election campaign as both the Republicans and Democrats are keen to take a hard line on America’s key economic rival.
THE Us-china trade war remains the biggest threat to global growth, as economists fear the uneasy truce between the two biggest economies could collapse with calamitous results.
If it does flare up again – potentially under the strain of the US presidential election race – global growth could be slashed by almost 1 percentage point this year and 1.3 points next year, according to Jamie Thompson at Oxford Economics.
“The Phase One deal between the US and China has been accompanied by a wave of optimism, but both historical evidence and more recent experience suggest caution,” he said.
“Over the course of the trade war, we’ve frequently seen a de-escalation in trade tensions followed by a re-escalation.”
A new flare-up could knock world GDP growth off its projected trajectory of a gentle rise to about 3pc annually, instead taking it down to a low point of barely 1pc in 2021.
A tough stance on China could be a key part of the US presidential election campaign as both the Republicans and
Democrats are keen to take a hard line on America’s key economic rival.
Rob Subbaraman at Nomura warned: “One risk to our baseline is the Uschina ‘cold war’ deepening as economic and foreign policy frictions feed off of each other, with the battleground broadening to tech supremacy. This would keep multinational companies in defence mode and focused on shortening their global supply chains.
“Another is China’s continued growth slowdown, which in 2020 we expect to be driven more by domestic headwinds – a cooling property market, weakening manufacturing investment and rising credit risk aversion – than exports, and what makes this more challenging is China’s
narrowing room for policy responses.”
The global debt boom could also turn to bust, he said, with central banks able to do little to help as interest rates are already at rock bottom.
If another slump does take hold, it could be left to governments to turn on the spending taps in a major and co-ordinated stimulus package to try to get their economies out of a hole. However, if this gamble on creating a boost for long-term trend growth fails, the result would be heavily indebted governments, a struggling economy and no clear policy tools left to help in future.
The geopolitical struggle for supremacy will continue for more than a decade, according to Douglas Mcwilliams at the Centre for Economics and Business Research.
He estimates that the US accounted for 24.8pc of the wor-ld economy this year – its highest share since 2007 – on the back of strong growth relative to regions such as the eurozone.
“Our view is that it has reached its high water mark and moving forward the deficit and its trade disputes will start to hold it back. Still, this is a remarkable performance for an old world economy,” said Mr Mcwilliams.
America will stay as the largest economy in the world for at least another decade, but can expect China to take the number one spot in 2033.
Meanwhile, India has already overtaken France and the UK to become the fifth-biggest economy, and will climb past Germany in 2026 to become the fourth-largest.
Japan will be knocked off third spot in 2034, according to the CEBR’S world economic league table.
Britain should stay just ahead of France, gradually extending its lead to 25pc by 2024.