One of three big ratings agencies has laid bare the economic cost of a full-blown trade war, as 150 trade bodies urged the government not to go ahead with its next planned move against China.
Speaking at Fitch’s annual sovereigns conference in New York on Thursday, its chief economist Brian Coulton warned that if the situation escalates further, it could knock 0.4 percent off of world growth next year.
Within that, Mexico would be the biggest casualty, with a 1.7 percent hit, the U.S. and Canada’s growth would both be 0.8 percent lower, while China and the European Union would fare slightly better, having 0.3 percent and 0.1 percent, respectively, chopped off forecasts for their economic expansion.
“The U.S. has a relatively large shock in this scenario, but that’s not because the U.S. economy is particularly open. It’s really because the shock is very much focused on the U.S. The U.S. is picking the fight with four, five, six different countries at once and they’re all retaliating to the U.S. in the scenario,” said Coulton.
These forecasts are based on a scenario where all auto imports to the U.S. and an additional $200 billion worth of Chinese imports are hit with 25 percent higher levies, followed by retaliatory moves by the countries in question and coupled with problems with the North American Free Trade Agreement.
Many had hoped that the U.S. and China could cooperate before the former slaps another round of levies on the latter, but this is looking less likely and the levies could be implemented in the next few weeks.
Adding to concerns over how long the trade dispute between the two countries could last, Stephen Schwartz, a senior director at Fitch Ratings, who was also at the conference, said he spoke to officials in Beijing a few weeks ago and cautioned that “they see this trade tension as something that’s going to last a while.”
“Nobody knows for sure. It could be a year. It could be two. It could be much more protracted so they are really now thinking about how to deal with it,” he said during a panel. “The bottom line is they’re hunkering down for the long term.”
Separately, the National Retail Federation and 150 organizations representing U.S. retailers, manufacturers, farmers, technology companies, natural gas and oil companies and other industries today submitted comments to U.S. Trade Representative Robert Lighthizer, who is overseeing the administration’s consideration of taxing some $200 billion of Chinese-made goods.
With the deadline for comments just days away, the groups urged the administration to avoid further escalation with China and warned of the negative impact of tariffs on American businesses, families and workers if it plows ahead with the additional 25 percent tariffs.
“The effects of the administration’s actions will most hurt the very consumers, small- and medium-sized businesses, manufacturers, farmers and workers the administration wants to protect,” the letter said. “Should all trade to and from China be subject to tariffs, the impacts and disruptions to the U.S. economy would reach across the entire country, from sector to sector, and negatively impact every American family.”
According to the letter, imposing a 25 percent tariff on $250 billion in Chinese imports — including tariffs that have already gone into effect this summer and those under consideration — would result in $62.5 billion in tariff costs for U.S. businesses and consumers each year.
Earlier in the week, two accessories companies that would be hit by the tariffs also made their case. Goody, a mass-market purveyor of hair accessories, told Lighthizer that “these tariffs would not be paid by China; they will be paid by Goody and our customers,” while handbag company Vera Bradley said tariffs could further damage its financial outlook.