US economy

Trump’s Trade War Could Put Swiss-Size Dent in Global Economy, I.M.F. Warns


That $700 billion loss because of the trade war with China translates to roughly 0.8 percent of global gross domestic product, she said, and includes more than $200 billion of direct losses to businesses and consumers. Much larger secondary effects from a loss of confidence and disruption to markets will also occur.

“In this scenario, the whole economy of Switzerland disappears,” Ms. Georgieva said.

Until recently, much of the American economy had been insulated from the pain of the trade war. That is because the bulk of the United States economy is powered by consumption and services, unlike some smaller countries that are more exposed to shifting global winds of trade. Trade represents just 27 percent of the American economy, according to World Bank figures, less than China at 38 percent and Germany at 87 percent.

The Trump administration has argued that the tariffs it began imposing more than a year ago are having only a limited effect on the American economy. Officials have blamed any signs of slowdown on weakness overseas, a strong United States dollar dragging on exports and the actions of the Federal Reserve, which has maintained tighter monetary conditions than many global central banks.

“We are still suffering the aftermath of severe monetary restraint in 2018,” Larry Kudlow, one of the White House’s top economic advisers, said in an interview on Fox Business Oct. 4. “And the eurozone in general is in a virtual recession.”

But several recent studies — from academics, Wall Street researchers and the Federal Reserve — have found varying degrees of economic damage from Mr. Trump’s trade policies, primarily through reduced business investment.

Steven J. Davis, an economist at the University of Chicago who has built several indexes to measure policy uncertainty, wrote in a research paper released in August that Mr. Trump’s trade uncertainty has unsettled trading partners and the global economy, contributed to depressed investment and become a major source of volatility in stock markets, developments that Mr. Davis calls “an extraordinary departure from recent history” for American trade policy. In another recent study, Fed economists estimated that trade policy uncertainty reduced the level of investment in the United States by at least 1 percent in 2018, which equates to several hundred billion dollars.

Goldman Sachs researchers ran a similar analysis this month, but they came to a much different conclusion. The trade war, they said in a research note, was only having “modest” effects on investment in the United States.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.