By guest contributor Rafiyat Husnain, Analyst, Atchison Consultants
The ongoing trade spat between the U.S. and China may be heightening the risk of an impending economic slowdown and cause increasingly volatile financial markets as we begin the new year. In addition to rising costs due to trade barriers, any escalation of disputes between the two nations may cause knock-on harm to other export-reliant economies as well.
The diagram above illustrates the rapidly growing trade imbalance between the U.S. and China over the years. Given the sheer volume of trade and integration between the U.S. and China, trade tensions between these giant economies may give rise to reduced consumer expenditure as a result of increased tariffs, and consequently, prices of goods. A restriction on the flow of goods and services coupled with the U.S.’s concern over trade manipulation from the Chinese government are also likely to discourage investment as investors garner increasingly negative sentiments about international trade and the demand for goods and services. The IMF predicts a cut in global growth forecasts over 2019 as a result of the trade war taking a toll on global GDP while emerging markets struggle with tighter liquidity and capital outflows.