Introduction
Trade wars, initiated by the United States, have far-reaching consequences on the global economy. The imposition of tariffs leads to a decline in real exports and GDP, affecting not only the countries directly involved but also those indirectly impacted through weaker demand for their own exports. In this article, we will analyze the macroeconomic impacts of these trade wars, highlighting the negative effects on global economic growth, world trade, imports, and fixed investment.
Global Economic Growth
The trade wars have significantly dampened global economic growth. In a protectionism scenario, the level of global real GDP is projected to decrease by 0.1% in the current year, 0.8% in the following year, and 1.4% by 2020. These figures indicate that global economic growth is only marginally above the threshold for a world recession, which stands at 2.0%.
World Trade Decline
The consequences of trade wars are evident in the decline of world trade. As countries become more protectionist, turning inward and imposing tariffs, multinational companies are forced to relocate production to end markets to remain competitive. Consequently, real global exports of goods and services are forecasted to be 2.4% below the baseline level by 2020. The sharpest declines in real exports are expected in China and the three North American countries involved.
Impact on Imports
Unsurprisingly, the United States experiences the most significant decline in real imports of goods and services. Compared to the baseline level, real US imports are projected to fall by 4.5% in 2020. China, due to its high import content, also faces a substantial drop in real imports, which are estimated to be 3.2% below the baseline in the same year.
Restrained Fixed Investment
The trade war scenario restrains real fixed investment, influenced by various factors such as losses in real exports, financial stress, declining equity prices, and reduced foreign investment in emerging markets targeted by US import tariffs. China, in particular, suffers substantial losses in fixed investment as both foreign and domestic investors adopt a more cautious approach to capital spending.
Timing and Global Economic Conditions
The timing of the trade wars exacerbates their impact on the global economy. Occurring as monetary stimulus is wearing off, oil prices are elevated, and political risks are on the rise, the trade wars are unfolding amidst an already slowing global growth trajectory. The question is not whether global growth will slow down, but rather, by how much.
Trade Implications for Steel and Aluminum Markets
The trade wars have had significant implications for steel and aluminum markets. Section 232 of the US Trade Expansion Act allows for the imposition of tariffs on steel and aluminum imports for national security reasons. These tariffs have sparked retaliatory measures and counter-tariffs from affected countries, resulting in disruptions to global supply chains and increased costs for industries relying on these metals.
Utilizing the S&P Global Global Link Model (GLM)
To assess the potential macroeconomic impacts of trade wars, S&P Global utilizes the Global Link Model (GLM). This quarterly econometric model describes the economic and financial activity and interactions of 68 countries. Starting with a baseline forecast, alternative scenarios are developed by imposing tariffs on imports from countries with which the United States runs a merchandise trade deficit. Retaliation by targeted countries is also factored into the model.
Conclusion
The trade wars initiated by the United States have had severe macroeconomic impacts on the global economy. Real exports, GDP, world trade, imports, and fixed investment have all been negatively affected. As global economic conditions continue to worsen, it is crucial for countries to find ways to resolve trade disputes and restore stability. The consequences of prolonged trade wars can potentially push the global economy into a recession, affecting businesses and individuals worldwide.