The global economy has been strong recently, but escalating trade disputes between the US and China have the potential to threaten the presently pleasant forecast.
The Economist Intelligence Unit (EIU) predicts in a new report, ‘Trade War Brewing?’ that the global trading system is set for a period of volatility. Recent protectionist measures have put the term ‘trade war’ into the public lexicon, but even if that extreme is averted, global trade growth will continue to slow. In 2019-2022, trade growth will sink to an average rate of 3.5% per year, according to the report.
The key factor in the decline, says the report, is the tension between the world’s two largest economies – the US and China. A trade dispute between them reached a boiling point in March when US President Donald Trump announced import tariffs of 25% on steel and 10% on aluminium.
For China, the extra 25% would fall on US$50bn worth of imports, including goods that are related to the country’s Made in China 2025 initiative – striking a harsh blow to the grand plan to bolster its high-tech industries.
In swift response, China dealt a blow to the US by drawing up its own list of tariffs on things like US soybeans, vehicles, and aircrafts, totalling the same value as Trump’s tariffs.
The two world powers aren’t likely to resolve the matter anytime soon. But, says the report, a full-blown trade war isn’t likely to become a reality. Lobbying from businesses and within the governments of both countries, along with fast-approaching midterm elections in the US, lower that risk.
Nonetheless, you can bet that the business environment for US companies with operations in China is going to become thornier.