You are here: Home » International » News » Economy
Business Standard

World economy is set to feel the delayed trade war pain in 2019

China's stock market has lost $2 trillion in value in 2018 and is languishing in a bear market


US China trade war
Representative Image

While 2018 was the year trade wars broke out, 2019 will be the year the global feels the pain.

Bloomberg’s Global Trade Tracker is softening amid a fading rush to front-load export orders ahead of threatened tariffs. And volumes are tipped to slow further even as the US and China seek to resolve their trade spat, with companies warning of ongoing disruption.

Already there are casualties. GoPro will move most of its US-bound camera production out of China by next summer, becoming one of the first brand-name electronics makers to take such action, while FedEx Corp recently slashed its profit forecast and pared air-freight capacity.

“Any kind of interference with commerce is going to be a tax on the economy,” said Hamid Moghadam, chief executive officer of San Francisco-based Prologis, which owns almost 4,000 logistics facilities globally. “And the is probably going to slow down as a result of it.”

Financial markets have already taken a hit. Bank of America Merrill Lynch estimates that the news has accounted for a net drop of 6 per cent in the S&P 500 this year. China’s stock market has lost $2 trillion in value in 2018 and is languishing in a bear market. Recent data underscore concerns that trade will be a drag on American growth next year. US consumers are feeling the least optimistic about the future in a year, while small business optimism about economic improvement fell to a two-year low and companies expect smaller profit gains in 2019.

For the world economy, the threat of has dissipated, not disappeared. Three risks stand out. First, 90 days of talks between China and the US might end in failure, with higher tariffs following. Second, even without an increase in tariffs, front-loading of exports in 2018 will reduce shipments in 2019. Finally, looking beyond the trade war, early warning signs from PMI surveys to FedEx profit warnings flag a softening of demand.

First Published: Wed, December 26 2018. 20:59 IST