“An escalation of global trade tensions that results in new tariffs on USD2 trillion in global trade flows would reduce world growth by 0.4% in 2019, to 2.8% from 3.2%,” Fitch Ratings said in a recently published report. Below are some key takeaways.
- The tariffs would initially feed through to higher import prices, raising firms’ costs and reducing real wages.
- Business confidence and equity prices would also be dampened, further weighing on business investment and reducing consumption through a wealth effect.
- The US, Canada and Mexico would be the most affected countries.
- GDP growth would be 0.7% below the baseline forecast in 2019 in the US and Canada and 1.5% in Mexico.
- China would be less severely impacted, with GDP growth around 0.3% below the baseline forecast.
- The US Federal Reserve’s monetary tightening would be scaled back given lower growth and lower overall inflation in the US, with the level of the Fed Funds rate around 0.5pp below baseline.
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