The Bank of Spain believes that the rise of protectionism between the united States and China could have a "high incidence" in the world economy , to estimate a direct impact of 0.25% in the world GDP in cumulative terms in 2019-2021, with falls in GDP of the united States and China's by 0.26% and 0.38%, respectively, while the economy of the euro area would shrink by 0.2%.
this follows a analytical piece by the supervisory body in which he analyses the rise of protectionism between the united States and China and their impact on the global economy, starting in the first scenario, focused on the direct channels real, that take into account the changes in the bilateral trade between the two countries and the second-round effects of global reduction of the global demand.
According to the simulations, the increase of tariffs (scenario 1) would lead to significant retraction of the activity in the united States, in China and also in the euro area, giving rise to a reduction of global GDP of 0.25% with respect to the central scenario in cumulative terms, in 2019-2021, with falls in GDP of the united States and China's by 0.26% and 0.38%, respectively.
The agency explains that the greatest impact on the chinese economy reflects the fact that the us tariffs affect a volume of imports in relation to its GDP is higher than that chinese authorities have represaliado. is In the euro area, GDP would contract by 0.2% , reflecting the "high degree of trade openness, which makes it more vulnerable to the fall in global activity".
In the second scenario, which also adds the potential effects of the loss of confidence and increased uncertainty, the Bank of Spain observes how the effects of confidence could lead to "adverse impacts significant", in relation to those derived from the real channels, not only because of the direct impact derived from the increase of risk premiums for the investment, but also by the effect of the second round in world activity, affects considerably the euro area.
however, he adds that "the impact of trade war on the uncertainty it is difficult to calibrate and, therefore, their effects should be taken with more caution than the corresponding to the real channels".
In fact, points out that there are several factors, however, could make the effects to be different from those considered in these simulations, since they do not take into account the reaction expansionary monetary policies at the global level that has already been started, and that would tend to reduce the magnitude of the impact.
Neither takes into account the fact that the trade tensions may lead to changes in the localization of global production chains , in which China has a prominent role, with effects on the activity of third countries, which could be positive or negative, depending on the case; or the possible diversion of trade to third economies, as the euro area, that is, they could see benefit in connection with their exports of certain types of products and services.uncertainty
In any case, the Bank of Spain warns that the trade tensions between the two countries, embodied in several rounds of increases in tariffs, they seem to be affecting "significant" to the global economic activity, with prejudice to the flow of bilateral trade between the countries , and in the fall of demand arising from lower activity and the rise of the global uncertainty.
In their judgment, could enhance the adverse effects in so-called global value chains, so that warns you that you might have a "high incidence" in the global economy through a number of channels of nature, direct and indirect, as demand changes in the relative prices of the goods.
Specifically, the increase in tariffs leads to a erosion of the disposable income of consumers , which could negatively affect consumption and investment, although it causes a more attractive domestic production versus imported.
The indirect channels are associated with the increased uncertainty, declining business and consumer confidence, which depresses consumption and investment, and in financial terms, with the increase of the risk aversion and the decline of the valuations of the assets.Updated Date: 20 September 2019, 19:01