Whoever wins the bitter trade dispute between the world’s two largest economies – the US or China – the consequences will extend far beyond, and can eliminate up to $600 billion of gross domestic product (GDP), according to a Bloomberg forecast.
Trade representatives from Washington and Beijing calmed markets when they indicated they were on the verge of a deal before the trade war reignited two weeks ago.
After the two sides introduced high tariff increases, the trade dispute turned into a technological war as the Trump administration blacklisted Huawei, a Chinese telecommunications giant, and has been pressing its foreign allies to abandon the 5G equipment the company.
Commercial tensions that are already high still have room to grow. For example, tariffs can be expanded for all trade between the United States and China, dragging markets down. Such scenario would cost the global GDP about $600 billion when the impact peaked in 2021, warn Bloomberg economists Dan Hanson and Tom Orlik.
Even without the trade dispute, production in China and the US would fall by 0.5 percent and 0.2 percent, respectively, while global output would fall by about 0.3 percent in about two years.
However, the fight is ongoing and neither side is willing to give up their positions, with each hoping the rival will finally make concessions. While US President Donald Trump reiterates that the US is “in a very good position” against China, Beijing says it has some trumps of its own and is indicating that it is not willing to compromise its “core interests.”
Increased tensions may result in tariffs on all bilateral imports rather than product groups. Given the possibility of tariff increases to 25%, world output may fall by 0.5%, while US and Chinese output may fall by 0.5% and 0.8%, according to analysts.
Financial markets, already sensitive to the US-China trade war, are expected to be dragged down as a nightmare scenario includes a 10 percent drop in the stock market, which would ultimately affect consumption and investment, as well as rising tariffs. This would lead to a 0.6% decline in global GDP, while China and the US would lose 0.9% and 0.7%, respectively.
Many analysts have already predicted that global trade could fall prey to tariff gambling. Additional US contributions to Chinese products exacerbate “uncertainty in the global trading environment” and slower growth, Moody’s said earlier this month. The International Monetary Fund has also warned of the consequences of trade tensions, warning that this will “jeopardize” global growth in 2019, undermine confidence and raise prices for consumers.