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US, China trade war will have lasting ramifications

The trade war between the U.S. and China could have far-reaching and long-lasting effects, panelists said at S&P Global's recent China Beyond Tariffs event.

When the dispute began, many thought the negative effects would affect only a narrow range of products and sectors, said Josh Green, founder of Panjiva Inc., which is owned by S&P Global Inc. and provides data on the global supply chain. We have now, however, reached a tipping point, and it is apparent that the impact is broad, he said.

"It's no longer a question of, 'Will the trade war affect my specific business, my specific industry?' It is," he said. "It's affecting the economy as a whole."

SNL ImageS&P Global's panel discussion on U.S. and China trade relations took place at the New York Stock Exchange.
Source: S&P Global

Some parts of the economy have been affected more than others. Countries and sectors with the greatest exposure to manufacturing and trade have seen the greatest negative effects, said S&P Global Ratings Chief Global Economist Paul Gruenwald.

"Two countries that come to mind are Germany and South Korea," he said.

The negative economic impact from the trade war has become more significant in the last year, and there is risk that it could continue to spread, Gruenwald said. The weakness has yet to impact consumption, the broader part of the economy that consists of households' use of goods and services. Countries with consumption-driven economies — including the U.S., China and parts of Europe — have seen some softness but are still performing OK, he said.

Employment numbers are a key metric to watch and see if the trade war starts disrupting the consumption economy. If the weakness moves into the labor market, it could lead to a recession, Gruenwald said.

"As long as people have jobs and they think they are going to continue to have jobs, they will continue to spend," he said.

The trade war has led to companies pulling back expenditures and spending in certain areas including venture investing, Gruenwald said. The dispute has brought uncertainty to the marketplace, and that makes strategic planning more difficult.

Some have seen reduced revenue because of trade war ramifications. Jacob Parker, a senior vice president for the trade association US-China Business Council, said a survey of his organization's 200-plus members found that the trade war is leading to lost sales that companies had not reported in previous years.

"Lost sales because of tariffs, lost sales because of doubts of continued supply and lost sales because U.S. companies are no longer being viewed as reliable suppliers," he said.

Several panelists noted that the bilateral talks between the U.S. and China and the use of tariffs have undermined the World Trade Organization, which is designed to deal with disputes and the global rules of trade between nations. U.S. officials may also continue to use tariffs even after President Trump leaves office, especially if many believe that tariffs spurred China to make economic reforms.

"It's going to be very difficult for future administrations not to use tariffs when they have been proven — at least from the prospective of some politicians — to be effective," Parker said.

Addressing trade issues with China has bipartisan support and could remain a point of emphasis even if a Democrat takes over in the White House, said Anne Wall, a partner with The Duberstein Group Inc., an advisory and advocacy company, who worked in President Obama's administration. While politicians may have their own views on the strategy, but "there is a bit of alignment between the president and Democratic candidates on our trade relationship with China," Wall said.

However the trade war unfolds, Gruenwald said the effects from the tensions will not simply disappear. "This is not going to be resolved by some great deal, and then we're going to back to normal," he said.