Trade war threatens £265bn blow to global economy as backlash against Trump’s protectionism grows
An escalation in the brewing trade war among the world’s biggest economies threatens to deliver a £265bn blow to the global economy next year, new forecasts show, as the backlash grows against US President Donald Trump’s protectionist policies.
The powerful US Chamber of Commerce, the nation’s largest lobby group with more than 3m members, has launched a campaign to oppose Trump’s tariffs, while the EU threatened to slap retaliatory tariffs on hundreds of billions of dollars worth of US goods.
Global stock markets shuddered today in response to the threats, with the FTSE 100 and S&P 500 indices both retreating.
Chinese equities also suffered one of their worst days of the year today. Shares in Shanghai and Shenzhen fell by 2.5 per cent and 1.5 per cent respectively.
Read more: Chinese stocks down 2.5 per cent today as tariff deadline looms
The falls came as the European Commission, the EU’s executive, wrote to the US Department of Commerce saying US trade partners would slap tariffs on goods worth $294bn – almost a fifth of US exports in 2017.
The US investigation into EU car exports “lacks legitimacy, factual basis and violates international trade rules”, the Commission said in a statement.
A deterioration in the global trade conflict could wipe 0.2 percentage points off global growth in 2019-20, with double the effect if global stock markets take fright, according to models from Oxford Economics.
A 0.4 percentage point dent in global growth would equate to a cost of $350bn (£265bn), if applied to the International Monetary Fund’s estimate of 2018 GDP – a cost equivalent to the annual economic output of Singapore.
Read more: US Chamber of Commerce attacks Trump on tariffs
Recent threatened tariffs would, if enacted, affect four per cent of total world trade, with a significant effect on the global economy.
Heavy stock market falls would likely drag back US consumer spending as well as pausing business investment, Adam Slater, the lead economist at Oxford Economics, told City A.M.
The massive costs of an escalation would likely be borne by consumers and producers across the world, with knock-on effects on suppliers to exporting countries, Slater said.
US Chamber president Thomas Donohue said: “Tariffs are simply taxes that raise prices for everyone. Tariffs that beget tariffs that beget more tariffs only lead to a trade war that will cost American jobs and economic growth.”
Yet Wilbur Ross, Trump’s commerce secretary, insisted the White House will not blink even if investors across the world flee equity markets.
“There’s no ‘bright line’ level of the stock market that’s going to change policy,” he told CNBC, adding that he expects “pulling and tugging” and “hiccoughs” for stocks.
Silvia Dall’Angelo, senior economist at Hermes Investment Management, said: “Financial markets are really facing a tug of war between decent economic fundamentals and the protectionist threat.”
Economists and investors still hope that tensions could cool. However, “even if we don’t get into a trade war, all this protracted uncertainty might have an impact on confidence,” said Dall’Angelo.
Read more: DEBATE: Is the EU justified in imposing counter-tariffs on America?