China was already unlikely to ride to the rescue of global growth. The trade spat between Washington and Beijing will dampen growth and sentiment globally, says one economist.
This article was originally published on July 15.
The escalating trade spat between the U. S. and China comes at an inconvenient time for the global economy.
The resilience of China’s economy in early 2018 has been an important buffer for global growth in the face of mounting headwinds, noted Louis Kujis, head of Asia economics for Oxford Economics, in a Friday note. But the economy is showing signs of a broad slowdown after downbeat May economic data, which Kujis expects to continue, braking growth from a pace of 6.8% year-over-year in the first quarter to 6.2% by the fourth quarter.
China’s economy was set to slow without the trade dispute and policy makers were already less likely to respond with the type of stimulus they have implemented in the past to the benefit of the domestic and global economy. The rising trade tensions only amplify the prospects of a slowdown, albeit at the margins.
“While the economic impact of the U. S. tariffs and ensuing retaliation by China will be modest, it does matter,” Kujis wrote. Assuming broadly one-for-one retaliation, Oxford Economics’s economic model suggests the trade actions will shave 0.1 to 0.2 percentage point off growth in 2018 and 2019 for both countries, he said, noting that the impact has already been incorporated into the firm’s forecasts.
Such numbers “still matter, and the increased uncertainty and risks will weigh on business confidence and investment, especially cross-border investment,” he said.
