Dr. Rebecca Harding

CEO

23rd June 2019

The G20 Summit is scheduled for the end of the coming week. It is widely expected that Presidents Xi and Trump will meet in an attempt to reinvigorate trade talks that seemed to collapse last month. Any meeting will fall far short of the full-on Summit that was originally planned but, while there are still discussions going on, there is hope. After all, trade jaw-jaw is better than trade war-war, as I have said before.

What impact is the trade war having?

Bloomberg economists anticipate that the impact on global GDP growth will be around 0.5% by 2021, the year in which the impact will peak. This is a net loss of $600bn in global output. The IMF anticipates a loss of 0.3% in the near term. It seems like a large amount of money presented like this, but is actually a small proportion of global GDP which, in 2018 was around $85tn. The US, according to Bloomberg economists will see its trade decline by around 0.5% if there is a 25% tariff imposed on all trade with China, while Chinese GDP will drop by around 0.8% by 2021. Again, these are relatively small proportions of GDP which was $19.4tn in the US in 2017 and $12.2tn in China.

It is more interesting to look at trade since, in the first instance at least, the reason for the US imposition of tariffs was to eliminate its trade deficit. That deficit stands annually at around $338bn with Chinese imports from the US worth around $146bn and exports to the US around $484bn. Exports between 2013 and 2018 grew at an annualised rate of 2.6% and this rate of growth is projected to fall to around 1.8% on average over the next two years. Conversely, imports from the US fell at an annualised rate of 1.6% over the last five years and are forecast to grow by 1.5% annually over the next two years. Ironically, though, the total deficit by 2021 will be around $380bn.

There is already evidence that China is shifting its supply chain to other parts of emerging Asia. This is not a new story but it looks like this will have a mixed effect on regional imports to China (Figure 1). Myanmar and Indonesia, the two smallest importers into China are likely to see their exports to China decline. However, Vietnam stands to benefit particularly strongly, South Korea, Singapore and Malaysia are also projected to see their exports to China increase.

Figure 1: Average annual growth in imports to China from selected ASEAN nations, actual, 2013-18 and projected, 2019-21

Source: Coriolis Technologies, 2019

Do not expect this to stop – if Presidents Trump and Xi meet at the G20 or if they don’t. The world of trade is changing. As trade becomes digital, and as supply chains become more integrated with digital trade flows, cyber-security and intellectual property, neither the national nor the international institutions of trade are fit for purpose. And as we go through the transition from a world where trade was about container ships and cargo to a world where it is about the Cloud and data, we can expect the noise from politicians to intensify as the global system recalibrates. This will certainly not be the end game.

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