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US-China trade war will shave off global output: Fitch

US' imposition of 25% tariff on China would reduce global economic output by 40 basis points in 2020 slowing global growth to 2.7% this year, credit rating agency Fitch said.

, ET Bureau|
Jun 26, 2019, 05.34 PM IST
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Countries not directly involved in the trade war would also see their GDP falling below baseline, though in most cases by less than the US and China.
Mumbai: US' imposition of 25% tariff on China would reduce global economic output by 40 basis points in 2020 slowing global growth to 2.7% this year and 2.4% next year, down from its previous forecasts of 2.8% and 2.7% respectively, credit rating agency Fitch said. It expects China's growth rate to reduce by 60 basis points and US growth to drop by 40 basis points in 2020. One basis point is 0.01 percentage point.

Fitch has assessed a scenario in which the US imposes import tariffs at 25% on $300 billion of goods from China and China retaliates by imposing a 25% tariff on $20 billion of US imports untouched by the trade war so far, and by raising the tariff rate on $100 billion of US imports already subject to new tariffs to 50%. The scenario also assumes that China cuts interest rates by 50 basis points and allows the Chinese yuan to depreciate by 5%.

Countries not directly involved in the trade war would also see their GDP falling below baseline, though in most cases by less than the US and China. Korea would be the most severely hit, with GDP more than 10 basis points below baseline in 2020. Net commodity exporters such as Russia and Brazil would be affected, as slower world growth would push oil and hard commodity prices down, Fitch said.

India along with Turkey, France and Spain would be least impacted by this trade war according to Fitch.
"Except in China, this trade war scenario would ultimately be deflationary as lower growth and hard commodity prices would curtail inflation. In the US, inflation would increase relative to the baseline in the year following the tariff hike. However, further out, slower growth, lower commodity prices and a stronger exchange rate would dampen price rises. Only in China would inflation remain above baseline for longer, because of the effect of a weaker exchange rate on import prices," Fitch said.



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