LONDON — If US President Trump follows through on his threats to stage a trade war against his former allies in Europe, China, and other countries, it could reduce world trade by 4% and wipe away 0.4 percentage points of global GDP (about $800 billion), according to Oxford Economics.
A trade war would be especially bad for the global economy because it would come right as oil prices and interest rates are both rising globally. “The threat to world growth is significant,” Oxford lead economist Adam Slater wrote in a recent note to clients.
His warning is the latest in a string from researchers, investment banks, and politicians:
- UK chancellor Philip Hammond said a trade war would be a disaster— for the American economy.
- HSBC said Trump’s decision to reimpose trade sanctions on Iran led to a rise in the price of oil by $10 per barrel.
- A separate Oxford Economics report estimated that new tariff threats would kill 100,000 American jobs in 2019 and shave off 0.1 percentage points off US GDP.
Slater’s research attempts to quantify just how much economic damage would occur across the planet if all Tump’s various threats come true. Summarised in one chart, it looks like this:
“Recent tariff threats, if realised, would extend high tariffs to over 4% of world imports – a tenfold rise. This comes just as the global upturn shows signs of faltering. The threat to world growth is significant: in a scenario of escalating tariffs, our modelling suggests world GDP could be cut by up to 0.4 percentage points in 2019,” Slater wrote.
Currently imposed tariffs only total about $60 billion (or 0.3%) of world trade. But all the upcoming proposed and threatened tariffs bring the total to $800 billion (4%).
Between 2015 and 2017 world trade had been growing. But that trend reversed after Trump took office at the beginning of 2017:
“The upsurge in protectionism comes at an inopportune time for the global economy. World trade growth appears to have slowed notably in recent months. Freight-based indicators are especially worrying, with six-month annualised growth having subsided from 6-7% in January to around zero in April. There are also broader indications of a slowdown. The Citigroup economic surprises indices for the G10 and emerging markets have turned deeply negative, with disappointing data releases dominating,” Slater told clients.
The US has some buffer room given that its economy is currently growing more quickly than the other major economic blocs. But that is threatened if a full-blown trade war arrives as central banks increase interest rates and oil prices go up, Slater believes.
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