This analyst says a US-China trade war is unlikely to blow up global trade growth

(Photo by Thomas Peter – Pool / Getty Images)
  • Despite another escalation in US-China trade tensions, Simon MacAdam from Capital Economics doesn’t expect a sharp slowdown in global trade volumes .
  • Global trade rose by 0.7% in April after falling in February and March, and the indicators for May look good.
  • MacAdam said if the US or China carry out their threats, trade volumes will still rise although the pace of growth will slow.

Reports that the US plans to ban Chinese investment in American technology companies sparked a wave of selling on global stock markets overnight.

China has vowed to strike back, as the tit-for-tat trade rhetoric between the two economic powerhouses ramps up yet again.

But despite concerns about the ramifications for global growth, Simon MacAdam from Capital Economics says there’s unlikely to be a material slowdown in global trade volumes this year.

MacAdam noted that the two countries “haven’t yet carried out the more significant of their threats and counter-threats to erect trade barriers”.

However, “even if they do, the measures announced so far are unlikely to end the expansion in world trade, but they almost certainly will weigh on trade growth”.

The latest data from the CPB World Trade Monitor shows global trade rose by 0.7% in April, after falling in February and March.

And the turnaround was driven by economies in the Asian region, which had also experienced the sharpest fall in exports since the start of the year.

In addition, McAdam said early reports on trade figures from China, along with open economies Singapore and Taiwan, show that export volumes rose further in May.

So what about the future outlook, given concerns that the increasingly aggressive rhetoric between the US and China will lead to an all-out trade war?

“World trade volumes are unlikely to return to the 5-6% annual growth rates of 2017 anytime soon, but they are also unlikely to collapse,” McAdam said.

However — aside from the threat of a trade war — MacAdam said a slowdown in global trade growth is probably to be expected, given that global GDP growth has most likely passed its peak.

And using manufacturing PMIs as a leading indicator, he said the data suggests growth in global export volumes could fall below 3%, which would be the slowest pace since President Trump’s election victory in November 2016.

But MacAdam isn’t overly concerned by those forecasts, choosing instead to lend more weight to the promising turnaround in Asian export volumes.

“What’s more, it’s plausible that the recent pronounced drops in export orders are simply the result of fears of an imminent trade war rather than a reflection of demand,” MacAdam said.

“Overall, the evidence does not suggest that the world economy is at the start of a marked slowdown, even as trade tensions are building between the US and its major trading partners.”

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