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The risk of a global trade war may impact GDP growth well before the war begins

Donald Trump has recently threatened to raise taxes on USD 200 bn of imports from China. China has immediately announced retaliatory measures that could in turn provoke further retaliations from the US. Donald Trump has also openly threatened to increase taxes on auto imports, implicitly targeting this time Europe and Japan.

Trade tensions have already begun to weigh on business confidence (particularly in Germany, the most exposed European country to global trade). Uncertainty now risks weighing on investment, even before global trade is affected by measures, some of which may never be put in place.

As global value chains are highly integrated, there would be no winner to a trade war. However some countries would prove more resilient than others.

Donald Trump probably seeks to increase pressure on its partners to negotiate on a bilateral basis, trade agreements whose terms would ultimately be more favourable to the US.It seems that he has some room for manoeuver:his threats have not weighed on US surveys as much as they have in the rest of the world. Moreover, he is comforted in his attitude by his rating approval, which at 45% reached its highest since he took office. But despite this, projections continue to indicate that the House of Representatives is likely to tip over to the Democrats (mid-term elections on 6 November).

While we continue to expect a modest impact on world trade and the continuation of the global economic expansion in 2018-19, we also believe that the threat of severe confrontation makes it necessary to take seriously into consideration the risk scenario (global downturn), of which we have increased the probability from 15 to 20%. Regarding trade, we consider that the probability of further escalation of tensions during summer is even higher (25%). But we estimate that the impact of the measures envisaged would not retrench more than 0.3pp on global GDP growth.

BOROWSKI Didier , Head of Macroeconomic Research
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The risk of a global trade war may impact GDP growth well before the war begins
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