This is how much the US-China trade war could cost the world, according to new research

Trade war

(Frank Mckenna, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Charlotte Edmond, Formative Content

The US-China trade war does not appear to be edging closer to a resolution. Both sides have failed to find a compromise so far, while rising tariffs have been jolting financial markets. And as the conflict escalates with no end in sight, new research suggests global losses could climb to $600 billion by 2021.

If tariffs expand to cover all trading between the two countries – and markets slump in response – Bloomberg economists predict the global economy could contract by 0.6%, with the peak impact felt two years down the line.

Both the US and China have imposed tariffs of up to 25% on some goods – and Bloomberg’s modelling suggests economic output will be down 0.5% in China and 0.2% in the US by 2021.

From bad to worse

President Donald Trump has said the US would further hike tariffs on all Chinese imports if a trade resolution isn’t reached between the two nations soon – and China would likely retaliate. As the chart below shows, the impact on economic output in such a scenario would be significantly greater.

Many investors are still betting China and the US will ultimately reach a deal. But if one fails to materialize, the financial markets are likely to see a sharp correction. A market drop would compound the impact of the tariffs, with global gross domestic product (GDP) taking an even bigger hit.

Bloomberg’s “nightmare scenario” sees 0.9% being wiped off Chinese GDP, and 0.7% from that of the US.

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