Economy Retrenchment To Become Global Unless US-China Trade War Resolved

Future of the world economy growth largely depends on the relations between Washington and Beijing, as the current trade war and retaliatory tariffs between the two nations impact not only bilateral interests, but global economy as well, experts told Sputnik

MOSCOW (UrduPoint News / Sputnik - 24th May, 2019) Future of the world economy growth largely depends on the relations between Washington and Beijing, as the current trade war and retaliatory tariffs between the two nations impact not only bilateral interests, but global economy as well, experts told Sputnik.

The latest economic outlook report by the Organisation for Economic Co-operation and Development (OECD) revealed on Tuesday that the trade tariffs introduced by the United States and China last year have already started slowing down global GDP growth and increasing inflation worldwide. By 2021, economy growth by the two nations is set to be 0.2-0.3 percent lower and the world GDP growth is estimated to decrease by over 0.6 percent in the coming 2-3 years.

Moreover, the ongoing trade battle between Washington and Beijing is ultimately fought on the backs of consumers in both countries, making them "unequivocally the losers from trade tensions," according to a new analysis by International Monetary Fund (IMF) published on Thursday.

The US and China have been trying to overcome disagreements that emerged in the wake of US President Donald Trump's decision last June to impose 25 percent tariffs on $50 billion worth of Chinese goods in a bid to fix the trade deficit. Since then, the sides have exchanged several rounds of duties.

The latest hit was made by Washington on May 10 when $300 billion worth of Chinese goods were subjected to the 25 percent tariff fee. Beijing pledged to retaliate by hiking tariffs on $60 billion worth of US imports starting in June.

Despite stalled talks between the two nations to end the escalating tariff dispute, Trump and his Chinese counterpart, Xi Jinping, are expected to meet at the G20 Summit in Osaka.

US-CHINA TIES KEY TO WORLD ECONOMY GROWTH

The state of relations between Washington and Beijing will determine the path of the global economic output in the next decade, Helga Zepp-LaRouche, the leader of the German Bürgerrechtsbewegung Solidarität, or Civil Rights Movement Solidarity party, told Sputnik.

"The key to the future of the world economy is the relation between the US and China, which already has more than 300 million middle class consumers, a number that will double in a decade," Zepp-LaRouche said.

The upward trend of Chinese imports presents a chance for the United States to reduce trade deficit between the two nations.

"China will import $40 trillion worth of imports in the next few years. All of this will offer excellent opportunities for the US to reduce the trade deficit with China by exporting into that growing market and will very likely be subject of a deal between Trump and Xi Jinping," the politician added.

Unless the two leaders strike the agreement to end the trade war, the residents of both countries will be the biggest losers with the global system also effected, another expert agreed.

"In the case of the current US-PRC [China] trade war, the economies and societies are so closely interconnected that the residents of both countries will be the biggest losers. The IMF has already reported on the negative impact to US interests. The Chinese government is preparing its citizens for pain by publicly comparing ongoing contraction to trials during the Long March of 1934-35. As the trade war slows bilateral sales, the world's two largest economies could slide downward (the US one has been stable lately but the Chinese one has already been diminishing)," Jamsheed K. Choksy, a professor of Indiana University's school of Global and International Studies, told Sputnik.

He added that trade wars and retaliatory tariffs would ultimately make everyone losers producers and consumers, individuals and corporations, exporters and importers and middlemen.

"Economic retrenchment will be global unless the trade war is resolved soon through amicable negotiation," Choksy argued.

ENERGY MARKETS TO SUFFER MOST DIRECTLY FROM TRADE WAR

The US-China trade war has also been driving down oil prices. US crude dropped almost 2.5 percent on Thursday to a two-month low, while Brent crude hit a three-week low under $70.

Moreover, ministers of the Organization of the Petroleum Exporting Countries (OPEC) and non-cartel producers called current tensions between the United States and China "critical uncertainties" that pushed the decision on prolongation of the oil production cut deal until late June.

"Lower demand for raw materials by the US and PRC and fewer shipments to and from those two economies will domino around the world because numerous other nations provide resources that contribute to the US-China supply chains. Oil and gas markets will be one sector to suffer most directly from the US-China trade war due to production and transportation decline drawing upon less energy," Choksy explained.

However, it is still unclear how prices would react to the trade war, since markets are also responding to declines in production in crisis-hit Venezuela and sanctioned Iran.

"Energy supply is one factor in favor of the US in the current dispute with the PRC because the US is largely self-sufficient whereas China is highly dependent on Middle Eastern oil and gas. Washington is well aware of this dichotomy and knows it has the upper-hand for now," the expert noted.

In the attempt to secure a short-term political win, both leaders are currently demonstrating questionable strategies in their ways to negotiate more favorable terms of the deal, Choksy noted.