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Trade war fear is overstated – Klaus Baader

29/06/2018

Chief global economist says potential damage will rein in superpowers from full trade war

The United States’ recently imposed tariffs on imported steel and aluminium imports will not lead to the feared global trade wars, according to Klaus Baader.

Speaking at the latest Societe Generale Global Economic Outlook breakfast, the bank’s Chief Global Economist said he believed that, despite ongoing skirmishes, the risk of all-out trade wars was actually diminishing. The implications for the global economy should prevent the vast majority of nations allowing the situation to deteriorate further.

Even if the EU imposes threatened retaliatory tariffs - on products ranging from Harley Davidson motorbikes to denim – these would only represent “minor sanctions,” Klaus said, before adding, “The damage of it escalating would be too great and all sides understand that.”

China in particular has also been expected to respond with its own tariffs, but Klaus argued that a serious escalation of trade tensions between the world’s two largest economies was unlikely. “The route to calming the US China trade battle is China opening up its markets, and it is already doing that. It has also made significant reductions in tariffs, although not quite yet enough,” he said.

Beyond the trade war, Klaus said he expected the global economy to continue steady progress, despite anticipated uncertainty. European economies have lost momentum since the beginning of 2018, he conceded, but this was largely driven by a slowing in Germany and France, which could be explained by temporary factors.

Other economies in the eurozone and Eastern Europe continued to hold up well, as is the case in Asia Pacific he argued.

While the global economy has escaped hyper-low inflation, low inflation would persist, he said, with consumer price inflation sitting at around 2% in advanced economies, as various factors holding core inflation down are likely to persist for some time, such as technological change, policies weighing on core service price inflation and modest wage growth.