OECD Report Says China Will Suffer More Than US Will in Trade War
China will be hurt more than the U.S. by their trade war, but growth will be dampened in both countries, according to a recent report from the Organization for Economic Cooperation and Development. The OECD forecasts that the Chinese GDP will drop by .5 percentage point if the current U.S. tariffs that are set to rise from 10 percent to 25 percent do so on Jan. 1; it will drop by 1 percentage point if tariffs are levied by the U.S. on all Chinese exports. And, business uncertainty could cause a drop of 1.3 percentage points, the Nov. 21 report suggested.
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This year, Chinese GDP growth is expected to be 6.6 percent. In the U.S., this year's GDP growth is expected to be 2.9 percent, and with the status quo in the trade war, the OECD expects it will be 2.7 percent next year. But if the U.S. levies tariffs on all Chinese imports, that growth rate would be 2.1 percent by 2020. U.S. exports should grow more slowly, from 4.1 percent growth this year to 2.1 percent growth next year; but imports will increase more rapidly, the OECD projects, going from 4.7 percent growth to 5.3 percent.
For China, export and import growth would slow. Exports should grow at 5.4 percent this year but only 5 percent next year; imports would fall more sharply. They are expected to grow at 7.9 percent this year and 4.9 percent next year. OECD chief economist Laurence Boone wrote, "global trade and investment have been slowing on the back of increases in bilateral tariffs ... [and] further trade tensions would take a toll on trade and GDP growth, generating even more uncertainty for business plans and investment. ... A sharp slowdown in China would hit emerging market economies, but also advanced economies if the demand shock in China triggered a significant decline in global equity prices and higher global risk premia."