The impact of the U.S.-China trade war, until now largely confined to manufacturing, may be spreading to the trade in services, a development that could further drag on global economic growth
Rising tariffs have contributed to a lengthening decline in cross-border sales of goods, contributing to a weakening of global economic growth this year as factory output declines. That has prompted an increasing number of central banks to cut their key interest rates in an effort to protect jobs and limit the impact of higher tariffs on other sectors of the economy, but chiefly services.
The World Trade Organization on Monday launched a new Services Trade Barometer that aims to flag changes in volumes over coming months. The measure fell to 98.4 in June, below the long-term average of 100 and down from a recent peak of 103.1 a year earlier.
According to the WTO, that points to “a loss of momentum in world services trade,” although it added that cross-border sales of services were likely to hold up better than sales of goods. The WTO said trade in services had already slowed sharply in the first three months of 2019, recording an increase of 3.6% from a year earlier, down from 5.1% in the final three months of 2018.
The kinds of services covered by the measure range from air travel to information and communications technology.
Earlier this month, the International Air Transport Association said passenger demand eased significantly in July.
“Tariffs, trade wars, and uncertainty over Brexit are contributing to a weaker demand environment than we saw in 2018,” said Alexandre de Juniac, IATA’s director general.
The new measure follows the release earlier this month of a global measure of activity in the services sector for August that pointed to a slowdown that was partly due to a drop in export orders.
International trade in services still lags behind trade in goods, although improved communications technology and digitization has helped it catch up over the last decade. In 2018, exports of services from members of the Group of 20 leading economies totaled $3.1 trillion, up from $2.1 trillion in 2008. While exports of goods also increased, to $10.8 trillion from $8.3 trillion, it did so at a slower pace.
However, a setback to the services sector could have an impact on economic growth in the U.S., where it accounts for 80% of economic activity, a larger share than the 70% of output that it accounts for in the European Union.
Sales of goods across national borders have been falling sharply since the final months of 2018, and were down again in the three months through June as exports from and imports to China fell. Economists at ING Bank expect trade volumes to be 0.2% lower this year than last, the weakest outcome since 2009, when the global economy was reeling from the impact of the financial crisis.
“The outlook for world trade is moving from bad to worse,” said Raoul Leering, head of trade analysis at the Dutch bank.
The slowdown in goods trade is partly the result of an escalating trade conflict between the U.S. and China, which has seen President Donald Trump announcing higher tariffs on a widening range of products, prompting Chinese retaliation.
There were some signs last week that tensions may be easing, with Mr. Trump delaying by two weeks the imposition of planned new tariffs that would have taken effect Oct. 1, the 70th anniversary of Communist Chinese rule. China responded by exempting purchases of U.S. soybeans, pork and other agricultural products from punitive tariffs, a move that appears aimed at addressing one of President Trump’s most pressing demands. However, there have been a number of false dawns during the protracted conflict.
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