The show must go on

  • Global trade of goods and services remained quite resilient this year despite the US’ protectionist rhetoric. In 2019, trade momentum is set to soften to +3.6% (down from +3.8% in 2018) in line with global growth. Protectionism might stay limited but further escalation to a trade feud could cost half a point of GDP growth. The price tag of an all-out trade war could reach two points of GDP. It might also precipitate a global recession.
  • There are three reasons to believe a trade war can be avoided. First, pragmatism in America. Second, the Chinese trade safety net plays a role. Third, protectionism fatigue might kick in. We expect a more constructive approach to trade on the US's side. Moreover, China’s retaliation has not wreaked havoc on global trade so far. At the same time, trade facilitation reforms and new agreements are some-what compensating for the US-China quarrel.
  • In 2019, the top five destinations for exporters will be the US (+USD193bn of additional demand for imports), China (+USD161bn), Germany (+USD67bn), India (+USD58bn), and Japan (+USD48bn). The best performing sectors will be services (+USD365bn of export gains) and electronic and electric (E&E) products (+USD337bn). Services will benefit from the rise of the middle class in emerging markets and the ongoing servitization of the manufacturing sector which is accelerated by digitalization.
  • In spite of trade tensions, Chinese exporters could gain as much as +USD146bn in new exports in 2019. American (+USD134bn), Indian (+USD71bn), German (+USD64bn), and Dutch (+USD52bn) companies might also make significant export gains. Asian and African new-comers could rise in prominence.
  • Apart from the impact of protectionism, businesses should prepare for a higher cost of trade, trade diversion, and rising political risk. First, the trade financing gap (USD1.5tn) will rise as monetary and financial conditions tighten (in USD terms), while currency, political and non-payment risks will increase. Second, trade diversion could create winners and losers. Asian trade pivots should benefit the most. Last, we expect 400 new protectionist measures globally (compared to 560 in 2017). Yet sophistication, as well as confiscation and expropriation risks, could increase as the economy experiences a soft landing.

 

Press contact

Lorenz Weimann
Allianz SE