Trade wars increasing recessionary risk: study

by Inside Logistics Online Staff

LONDON, UK – US efforts to reduce its trade deficit through tariff measures seem to be ineffective, as the deficit has grown over the past two years. Against this backdrop, re-establishing faith in fair trade is the way forward to avoid another global economic recession, says GlobalData, a data and analytics supplier.

The GlobalData Risk Index (GCRI) Q2 2019 update indicates a 0.19 percent increase in global risk in comparison to Q1 2019 update and risks associated to trade uncertainties appear to be one of the major decisive factors in increasing the global risks.

“When the economic patriotism overshadows the fundamentals of fair trade, the engaging parties are bound to bear the consequences often in the form of demand and price uncertainties, which will have deeper impact on their agricultural, industry and services sectors,” said Jaison Davis, economic research analyst at GlobalData.

According to the US Census Bureau data, the US trade deficit witnessed a year-over-year (YoY) growth of 8.17 percent from January-July 2018 to January-July 2019, with no signs of slowing down for the rest of the year.

While the trade deficit against China has witnessed a decline of US$25.44bn (-10.83 percent YoY), the deficits against the European Union (EU), Mexico and Japan witnessed an increase of $8.79bn (9.22 percent), $15.64bn (36.49 percent) and $2.74bn (6.90 percent), respectively during the same period.

Costs of tariff wars

According to bipartisan advocacy group ‘Tariffs Hurt the Heartland’, the tariffs paid by the US rose by 21.43 percent over the previous month and by 240 percent over the previous year in June 2019 on the products subjected to new Trump administration tariffs.

A recent study by the National Foundation for American Policy indicates that the tariffs in effect and those scheduled for the end of 2019 will cost the US households an average of $2,031 per year.

Escalating tariff wars also affect international trade and adversely impacting global economic growth as the benefits of more or less competitive free-trade wash away. Due to prevailing trade uncertainties, the International Monetary Fund recently downgraded its 2019 global economic growth projections to 3.2 percent in July 2019 from its earlier projection of 3.3 percent released in April 2019.

Reinstating faith in fair trade

In the US, employment growth and manufacturing activities have slowed over the past three months. The agricultural sector has taken a hit, forcing the Trump administration to announce aid of around $28bn. For China, domestic consumption is slowing down and the country is struggling to expand its trade prospects. Similar trends are visible in the EU and across the major global economies.

Davis concludes: “Unless faith in fair trade is re-established, uncertainties will deepen the recessionary pressure on global economy in a short span of time, possibly within a year.”