Title: Global trade watch - Trade war scenarios - Insights
Headings: Global trade watch – Trade war scenarios
Global trade watch – Trade war scenarios
Introduction
Base scenario: Avoidance of a damaging trade war
Contagion channels
Negative scenario: Deepening US-China trade conflict
Worst case scenario: full-blown global trade war

Content: Consequently, import tariffs in general have an upward impact on production costs and/or consumer prices of the importing country. This will have a negative impact on company profits, fixed investment growth and private consumption growth. Secondly, the imposition of trade tariffs by certain countries can also have an impact on the economies of countries that are not directly affected by these tariffs, for instance if they play an important role in global supply chains. A lot of Asian countries are exporting intermediate goods to China in order to facilitate Chinese exports to the US. These countries will also be impacted by a US-China trade war. Moreover, when tariffs are imposed on certain good their prices excluding tariffs tends to fall. This means that the import prices of the importing countries that are not directly subject to the tariffs tends to decline. Thirdly, business confidence can be hit by the uncertainties surrounding the implementation of protectionist measures and its potential impact on economic growth. If these negative confidence effects last for a while, they can spill-over to domestic demand, particularly investment. Cross-border FDI flows will likely also be hurt in case of rising uncertainty.