How a Trump trade war could slow down the global economy
Europe is preparing 25% tariffs on U.S. goods from Levi's to Harley Davidson bikes in a sign of brewing retaliation for President Trump's imposition of a levy on foreign steel, and economists are warning of a sharp hit to the global economy and markets.
Why it matters: Economists tell Axios that, should Trump proceed with his 25% steel tariffs, and tit-for-tat retaliation cascade, there is serious risk of a blow to global GDP growth, which the International Monetary Fund had forecast at 3.9% for 2018 and 2019.
Already, U.S. metals prices have surged since Trump's announcement. Aluminum, for instance, soared to a three-year high this morning, up by 11.8% since the president spoke, report the FT's Henry Sanderson and Neil Hume.
John Ferguson, director of global forecasting for the Economist Intelligence Unit, tells Axios that, even short of a full-fledged trade war, a low-grade exchange of high tariffs could trigger prolonged stock market declines such as happened yesterday and today.
That could cascade this way:
- Companies pull back capital spending plans
- Consumers, with less money in their pocket than expected, curtail their spending
- Global GDP growth, reliant on capital and consumer spending, suffers.
In one example of this already happening, Sweden's Electrolux announced it will hold off on a $250 million expansion of its appliance manufacturing plant in Springfield, TN., because of the tariffs, reports Rick Rothacker of the Charlotte Observer.
"The impacts could add up to a meaningful slowdown in global GDP," Ferguson said.
Go deeper: Winners and losers in the trade crisis
This post has been updated with the postponement of Electrolux's investment.