Macroeconomic impacts: No winners in this trade war
There are no real winners in this US-initiated trade war. Countries facing new tariffs, including the United States, experience declines in real exports and GDP. Other countries are hit indirectly through weaker demand for their own exports, either through supply chains or in response to weaker global economic growth. These effects outweigh any potential gains from trade diversion to avoid tariffs. In the protectionism scenario, the level of global real GDP is reduced 0.1% this year, 0.8% in 2019, and 1.4% in 2020. Thus, global economic growth in 2019 and 2020 is only marginally above our 2.0% threshold for a world recession.
World trade suffers in a more protectionist environment, as countries turn inward and multinational companies move production to end markets to stay competitive. In the scenario, real global exports of goods and services are 2.4% below the baseline level by 2020. The sharpest declines in real exports occur in China and the three North American countries.
Not surprisingly, the United States experiences the largest decline in real imports of goods and services. Compared with the baseline level, real US imports fall 4.5% in 2020. Due to the high import content of its exports, China also experiences a significant drop in real imports, which fall 3.2% below the baseline in 2020.
Real fixed investment is restrained in the trade war scenario, reflecting losses in real exports, financial stress, declining equity prices, and reduced foreign investment in emerging markets targeted by US import tariffs. The most substantial losses are in China, as both foreign and domestic investors will take a more cautious approach to capital spending in China.
Bottom line consequences
The timing of the trade war (never good) could not be worse. It is occurring as monetary stimulus is beginning to wear off, oil prices are elevated, and political risks are on the rise. Global growth is beginning to slow—the only question is, how much?
Learn more about the trade implications to steel and aluminum markets and section 232.
In this report, we utilize the S&P Global Global Link Model (GLM) to assess the potential macroeconomic impacts of a trade war initiated by the United States. The GLM is a quarterly econometric model describing the economic and financial activity and interactions of 68 countries. Starting with our baseline forecast, we develop an alternative scenario in which the United States levies wide-ranging tariffs on imports from countries with which it runs a merchandise trade deficit exceeding USD4 billion. Since the European Union is a customs union with common external tariffs, we assume equal tariffs are imposed on US imports from all 28 member countries. We also assume the targeted countries retaliate by imposing commensurate tariffs on their imports of goods from the United States.
