CRU: A 'Trade Spat' Could Shave a Percent Off Global Growth

The effect could be two to three times larger if we assume full retaliation and a bigger confidence crisis. To assess the risks of a trade spat we will be monitoring how economies adjust to the new tariffs, how policies respond to emerging pain points and the geopolitical landscape.

We do not have much "hard" data to point to, but reliable "soft" business indicators are now flashing amber. Overall, the optimism that drove strong growth in 2017 appears to be fading, with trade tensions certainly a contributing factor. Leading us to ask whether global growth will come of its peak fast or slow?

Base case: global growth slows gradually
CRU's view is that global growth slows from 3.1% in 2018 to 2.9% in 2019 and 2.8% in 2020. The narrative that supports this includes: China slows as a result of its ongoing effort to tackle debt and rein in credit growth; the US slows as this year fiscal stimulus abates and the Fed continues raising interest rate; and that the EU slows as the economy cools to its trend growth. Our base case includes the tariffs already implemented - the aluminium and steel tariffs, the first round of US tariffs on China, and the retaliation by China. But the impact of these tariffs is small, less than 0.1% of world GDP. While our base case assumes that trade tensions continue, significant escalation of tensions, remains a downside risk to our forecast.

Trade spat scenarios: global growth slows faster
A trade spat could push the global economy to slow down by more than we expect in the base case. In this section we consider four scenarios, each will illustrate its impact on the pace of growth slowdown.

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About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

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