Trade War Threats: International growth may slow by 100 bps, says S&P

By: | Published: June 5, 2018 5:35 AM

According to the Organisation for Economic Cooperation and Development, global GDP growth could inch up a tad in 2018 to 3.8%, compared with 3.7% in 2017.

Donald Trump, Donald Trump tariff threats, Global economic growth, Indian economy, US tariff threats, US china trade war, indian GDPAnalysts have said any such slowdown will also impact India, which witnessed economic growth touching a seven-quarter high of 7.7% in Q4FY18 and goods exports scaling a three-year peak last fiscal. (IE)

Global economic growth could slow down by 1 percentage point — or more than a quarter of the expansion rates projected by various international bodies — if US President Donald Trump’s tariff threats against China and others escalate into a full-blown trade war, S&P Global’s chief economist cautioned on Monday. Speaking to CNBC’s “Squawk Box Europe”, Paul Gruenwald, chief economist at analytics firm S&P Global, said while it may not be a global recession but “one could imagine a scenario where rather than global growth in the threes we have global growth in the twos, where you get the US and Europe and China all pulling back at the same time”.

Analysts have said any such slowdown will also impact India, which witnessed economic growth touching a seven-quarter high of 7.7% in Q4FY18 and goods exports scaling a three-year peak last fiscal.
The International Monetary Fund (IMF) has predicted economic growth at 3.9% for 2018 and next year, against 3.8% in 2017. According to the Organisation for Economic Cooperation and Development, global GDP growth could inch up a tad in 2018 to 3.8%, compared with 3.7% in 2017.

The threats of a trade war resurfaced late last month, as the US, after signalling a thaw, announced it was proceeding with plans to impose 25% tariffs on $50 billion worth of Chinese goods, sparking angry reaction from Beijing that threatened retaliatory action.

Last Thursday, the US hit some of its closest allies, slapping tariffs on steel and aluminium from Europe, Mexico and Canada, after initially exempting them from this tax that is also applicable to supplies from countries like India. Consequently, at a meeting of the finance ministers of G-7 nations last Friday, the US had to face attack by these countries that also sought to retaliate and mount challenges with the World Trade Organisation (WTO). India has already dragged the US to the WTO over duties on steel (25%) and aluminium (10%). Commerce minister Suresh Prabhu is visiting the US next week to flag India’s concerns.

The IMF had in April raised its forecasts of global trade by a decent 50 basis points for 2018 from the level it expected in January, but it flagged risks from “inward-looking policies” of some countries. The WTO, too, anticipates merchandise trade volume growth to drop to 4.4% in 2018 and 4% in 2019, from 4.7% in 2017. The growth rate is below the average rate of 4.8%. It warned of signs that “escalating trade tensions may already be affecting business confidence and investment decisions, which could compromise the current outlook”.

Even staff simulations by the European Central Bank pointed out in April that global growth could contract by up to 1 percentage point in the first year after the tariff changes and world trade in goods could shrink by up to 3 percentage points.

After witnessing a fall on last Thursday, Asian stock markets on Monday picked up from a strong close on the positive US payroll numbers released on Friday, and are currently at a two-and-a-half-year high.
Trump had initially threatened tariffs on up to $150 billion worth of Chinese goods, citing Beijing’s unfair commercial practices.

China, which, too, had threatened to retaliate by raising duties on US goods worth $50 billion, is in negotiations with the US, without any concrete results so far. China had a record $375.2-billion goods trade surplus with the US in 2017.

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