Full-scale trade war may cost the world economy 470 billion USD by 2020. The US decision to impose a customs duty on steel and aluminum can only be the beginning, as President Donald Trump threatens with more levies and the other economies promise to respond. The EU Trade Commissioner Cecilia Malstrom said that she will confront the threats of the protectionists.
The economists analysis predicts that if the US imports a 10% import tax and the rest of the world responds, the global economy will shrink by 0.5% by 2020 compared to a no-duty scenario.
The economists believe that such a move will harm the world economy in many ways, first of all with higher inflation, which reduces demand for the US consumers, and this in turn damages the exports of other economies. In response, the inflationary shocks will be felt in other countries as well, which will affect US exports.
As a result, the US economy will shrink by 0.9% in 2020 against a no-duty scenario. The inflation will accelerate and most central banks in the world will face the difficult choice between measures to tackle faster price growth and less demand for trade war.
The global trade may shrink by 3.7% by 2020 against a no-duty scenario. The impact on the world economy will be felt this year, albeit poor, and growth will be 0.2% lower in 2019 and 0.3% in 2020.
The analysts also point out that in the long run global GDP will also suffer, as weaker trade means less competition and more barriers to the exchange of technology and ideas. All this reduces the productivity and sustained growth rate of the world economy.
This concern was expressed by many, including German Chancellor Angela Merkel, who warned that no one would win a global trade conflict. Germany is one of the countries targeted by Trump’s measures, given its surplus, and the US president also said that the EU is dealing very badly with the United States in the area of trade.