Adverse impact of tariff conflict on global trade

US-China trade tensions cause global trade to shrink by 2.3 % 

L to R: BK Sethi, Sunita Vyas, Pramod Goyal, Royce Mendes, Shibaney Sahney, Sanjay Kulkarni, Rakesh Joshi 

The rising trade tensions between the United States and China have impacted the global economy adversely and resulted in an overall shrinkage of global trade by 2.3 percent. With the tensions unlikely to dissipate in the near-term, the World Bank expects the global economy to grow by just 2.6% this year – the weakest since financial crisis of 2008-2009.

Royce Mendes, the Director and Senior Economist of CIBC Capital Markets, in his annual presentation on the global economic trends, emphasized that the impact of the trade tensions between two of the world’s largest economies will also be felt on the Canadian economies; already China has stopped the imports of some agricultural commodities claiming that these are contaminated.

Mendes said the tariff war between the US and China has crossed $360 billion – with US tariffs on China crossing over $250 billion and Chinese counter tariff crossing $110 billion. The Chinese economy has been severely hit by the US tariffs, and the threatened imposition of additional tariffs by the US would pull down the GDP numbers to around 5 percent.

He said, while the impact of the tariff war on the Chinese economy is debilitating, the US economy, too, has been slowing down quite a bit. The downward trend in the US economy may not result in a recession, and the US monetary policies may attempt to prevent the downward slide by tinkering with the bank rates.

Additionally, the competitive regulatory regime that the Trump administration has adopted to bring investments and jobs back into the USA has had an adverse impact on the Canadian economy. For instance, the Canadian economy has lost its corporate tax advantage as the US shifts to lighter regulatory burden.

Mr. Mendes said that the lowering of bank rates in the US may have an impact on the Canadian economy. On the Canadian front, the housing market has remained sluggish despite the mortgage rates becoming attractive in the recently. The auto sales also reflect this downward trend, indicating a slowdown. Canadian economy is more reliant on rate sensitive sectors, in addition to elevated stock of household debt, he said.

He said that the consumer debt will remain a perennial pressure point for Canadians, but they are unlikely to get into a payment default ever.

Mr. Mendes said, “The coming rebound in Canada looks to be little more than a normalization following a particularly weak few quarters. Base-case outlook is for the trade-war to linger into next year and the US economy to gradually slow, requiring the Fed to ease only twice to sustain the expansion.”

He said that the Bank of Canada will follow the Fed by cutting rates in 2020 to keep the Canadian dollar competitive and spurring sustained growth in exports and business investment. But, the timing, location and magnitude of trade shocks is difficult to pinpoint, and the situation could deteriorate faster or more aggressively than expected. 

Recession is outside of base-case outlook, but trade-war could end up being trigger. Stocks can still rise, so long as rate cuts are delivered, and growth responds, Mr. Mendes said.

Members of the audience at the annual presentation on global economy 

Mr. Venki Raman, Vice President, Mobile Advice, CIBC, introduced Mr. Mendes to the audience, and emphasized that “he leads the CIBC Capital Markets’ efforts in monitoring and forecasting the Canadian economy, a team judged to be the most accurate by Reuters in 2018.”

In his remarks, Mr. Pramod Goyal, President, ICCC, said, “the relationship that the ICCC and the CIBC have developed over the years has benefited both the institutions.” Mr. Goyal welcomed CIBC’s clients, ICCC Members, and other guests to the program.

Ms. Sunita Vyas, Vice President, Events and Programs, introduced the evening’s program, and Mr. Rajeev Misra, Market Vice President, CIBC, gave the vote of thanks.