US, China trade war could dent economic growth

The ongoing trade war between the U.S. and China could start having material effects on the economies of both countries within the coming years, according to new projections from the International Monetary Fund (IMF).

In a report released on Tuesday, the IMF estimated that despite positive policy tailwinds in the U.S. economy resulting from things like tax reform, growth will be less than previously expected next year, as a result of the trade war.

The body now expects the U.S. economy to grow at a rate of 2.5 percent in 2019, a 0.2 percentage point decline from its April estimates.

China’s economy could also take a hit: The IMF revised its forecast for economic growth in 2019 down to 6.2 percent, slightly lower than previous estimates and down from 6.6 percent this year.

In September, the U.S. implemented another round of tariffs on $200 billion worth of Chinese goods, which were met with countermeasures out of Beijing on $60 billion worth of U.S. goods. The pair of economic powerhouses had already imposed levies on $50 billion worth of one another’s exports.

It’s not just the world’s two most powerful economies that stand to be affected by trade policy. The IMF predicts the global economy will grow by 3.7 percent in 2018 and 2019 – a 0.2 percentage point downward revision from previous forecasts.

“Risks to global growth skew to the downside in a context of elevated policy uncertainty,” the IMF wrote. “Several of the downside risks highlighted in the April 2018 World Economic Outlook (WEO) … have become more pronounced or have partially materialized.”

The IMF said higher trade barriers could disrupt global supply chains, slow the spread of technology and ultimately lower global productivity and welfare. It cited U.S. tariffs on solar panels, washing machines, steel and aluminum, in addition to retaliation by trade partners, as potentially depressing factors.

In addition to trade tensions, the IMF mentioned aging populations, rising interest rates and unexpectedly high inflation as other potential economic risks.

U.S. Treasury Secretary Steven Mnuchin is expected to meet with international finance officials in Indonesia this week during IMF and World Bank summits, though as of Monday he had no meetings scheduled with Chinese officials – as reported by Reuters.

In a press conference at the White House on Tuesday, President Trump said “China wants to make a deal and … they’re not ready yet,” adding that is a reason his administration has canceled a couple of meetings with Beijing.