UN warns US-China tariff hikes risk global 'economic downturn'

A study from the United Nations revealed on Monday that if the US and China go ahead with their plans to hike tariffs in March, the global economy could suffer a downturn.

If China and the US do not reach a trade agreement before the end of March, the Trump administration has threatened to push ahead and raise tariffs on $200bn-worth of Chinese made goods from 10% to 25%.

According to the UN, such a move could reverberate throughout the world economy due to the instability that it might set-off in global commodity and financial markets, and by forcing companies to adapt by rejigging their supply chains, further denting global growth prospects.

“The implications are going to be massive,” Pamela Coke-Hamilton, head of international trade at UNCTAD, told a news conference on Monday. “The implications for the entire international trading system will be significantly negative.”

“There’ll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures,” she said.

Coke-Hamilton also said that the smallest and poorest Asian countries would be left worst-off, since they have the least wherewithal to cope with external shocks. Indeed, the UN predicted a $160bn hit to the region's exports.

Nevertheless, whereas as US companies would only manage to recoup 6% of the $250bn-worth of Chinese exports that would be subject to that 25% levy, trade diversion meant that other countries stood to gain.

"The EU will capture $70 billion of the U.S.-China trade. Japan, Mexico and Canada will capture over $20 billion each,” the researchers found.

For its part, China would manage to retain just 5% of the $85bn-worth of US exports subject to Beijing's tariffs.