Trade War Could Push US, China Into Recession

An all-out US-China trade war could cut 60,000 Australian jobs and shave real wages by $16 per week for the average worker, according to new economic modeling by KPMG, a professional service company and one of the Big Four auditors, along with Deloitte, Ernst & Young, and PricewaterhouseCoopers.

The analysis estimate the trade conflict would inflict a prolonged recession on the world economy with the US going into recession. And involvement by a significant number of other countries in a trade war would cut Australian national income by $500 billion over 10 years, the equivalent of 40% of last year’s total household disposable income, Business Insider reported.

KPMG Australia’s paper—Trade Wars: There are no winners—shows the effects of other countries introducing protectionist measures such as a 15% tariff on imports would be very significant. The world economy would contract by more than 3%.

“The lesson from our modeling is that no country would win from a global trade war and every country would lose,” says Brendan Rynne, chief economist, KPMG Australia. “Even in the event of a full-blown trade war between the US and China, it is in the best interests of other countries to stay out of it.

“Policymakers in Australia and other nations would be well advised to resist the political pressure to impose or increase tariffs on goods imported from the US and China as they seek new markets.”

In a full escalation, an all-out trade war, the US would go into recession and a cumulative loss of GDP of 4.6% over five years.

China wouldn’t fall into recession, but its economic growth rate would slow to just 4% and would stay below 5% for around five years—China’s worst economic growth performance in almost three decades.

But if the US-China trade war is confined to those two countries, and restricted to current announced measures, then the negative impact on the world economy would be kept to below -0.5% global GDP, the paper said.

But if the trade war escalated to a 25% tariff on all goods traded between the US and China, both countries would end up with GDP 1% lower, but with China faring worse over time.