If the trade war between the US and China continues to escalate, it could shave $600 billion annually off global output within two years, according to new research.
The tariffs implemented so far could slash the quarterly gross domestic product of China by 0.5% and of the US and the rest of the world by 0.2% in 2021, according to estimates from a Bloomberg Economics study. If US President Donald Trump follows through on his threat to hike tariffs on virtually all US imports from China to 25%, and China retaliates in kind, GDP could fall 0.8% in China and 0.5% in the US and worldwide, the researchers found.
Failure to strike a trade deal could also spark a sell-off in stock markets, reducing consumer spending and investment — two components of GDP along with government spending, exports, and imports (which are subtracted in the calculation). A 10% drop in equity markets would result in a 0.9% drop in Chinese GDP, a 0.7% slump in US GDP, and a 0.6% slide in global GDP by the middle of 2021, according to the economists’ model.
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