Economic repercussions of US-China trade dispute

In March 2018, President Trump signed a memorandum directing the following acts: 

• To file a WTO case against China for their discriminatory licensing practices.
• To restrict investment in key technology sectors.
• To impose tariffs on various Chinese products (Aerospace, technology etc).

After a few months of mild retaliation from both China and the United States (US), on the 6^th of July 2018, the US implemented the first targeted tariffs on China. Since then, both sides have countered each other with various tariffs and restrictions.

The effects of the trade war are seen on a global scale, with material impact on the stock market as well as the global economy. Currently, it seems that there are no real winners derived from this dispute:

• The US economy has been slowing down and recently declined to 1.9% in the latest quarter.
• China’s economy is growing at the slowest pace in 3 decades.
• Global growth has declined significantly this year, with the International Monetary Fund (IMF) downgrading its global growth forecast for the full year 2019 to 3.0%, its lowest level since the global financial crisis (GFC) in 2008.

This has led major central banks around the world to push for monetary stimulus to reduce downside risks to growth and support the economy. Central banks in the US, Australia and European Union (EU) have provided appropriate easing measures and multiple interest rate reductions this year to prevent de-anchoring of inflation expectations in the absence of inflationary pressures and weakening activity.

IMF forecasts that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8% by 2020. Global growth is expected to pick up to 3.4% in 2020, reflected primarily by a projected improvement in economic performance in emerging markets.

Most recently, the US has announced that it will delay further tariff increase for Chinese goods as well as progressing with a Phase 1 deal. The preliminary deal is certainly a positive step towards a reversal of the current economic trajectory.

Sources: IMF data, China Briefing Newsletter, Refinitiv