The likely trade war that might happen between the world’s two biggest economies (America and China) could lead to damaging economic consequences that could ultimately affect global growth rate.
The Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) have both issued forecasts expressing confidence in global growth while highlighting a trade war as a major downside risk to their generally still-positive outlooks.
Global growth in 2016 and 2017 was 3.2 percent and 3.7 percent, and is projected at 3.8 percent this year and 3.9 percent in 2019, according to OPEC.
“If the two largest economies in the world are in a trade war, then we are likely to see the fall out. These two are our largest trading partners. So, if there is a trade war we are going to be caught one way or the other. There might be some advantages and also disadvantages. But globally, the whole world will be affected. The US economy is worth about $18 trillion and the Chinese economy is about $14 trillion,” Bismarck Rewane, managing director, Financial Derivatives Company, said on phone to BusinessDay.
“It will have an impact to us. If global trade is increasing, the global growth rate will also increase, but if global growth is constrained then you are bound to have some problems,” Rewane also added.
Analysts have attributed that the likely trade war could affect the demand of crude oil product from Nigeria. According to Johnson Chukwu, CEO, Cowry Asset Management Limited, “If the US and Chinese market slows down because of a trade war, the implication is that the demand for crude oil product will decline, which could affect Nigeria exports.”
The foreign trade sector of the Nigerian economy improved further in Q1 2018, as it recorded the best trade performance in the last nine quarters. Total trade improved to N7.2 trillion in Q1 2018 from N3.1 trillion in Q1 2016, and the exports improved to N4.7 trillion in Q1 2018 from N1.4 trillion in Q1 2016, according to the National Bureau of Statistics (NBS) foreign trade report.
Foreign trade remains vulnerable to the volatility in the crude oil markets as crude oil exports dominate the exports at 76.3 percent of total exports in Q1 2018, but lower than 83.0 percent in Q4 2017. Nigeria exported N368.3 billion worth of crude oil products to the US in Q1 2018.
Nigeria’s major export partners are Netherlands, India, Spain, US and France; contributing 20.5 percent, 18.2 percent, 8.3 percent, 8.2 percent and 6.3 percent, respectively. Major import partners are China, Netherlands, Belgium, US and India; contributing 21.1 percent, 12.1 percent, 10.6 percent, 6.5 percent and 6.3 percent, respectively.
“When there is a trade war, the price of goods produced in the local market will increase and consumers are unable to consume as much quantity as they use to. That will lead to a slowdown in the economic activities, and those countries will not be able to export,” Chukwu explained.
On June 18, President Donald Trump ordered his administration officials to draft plans for tariffs on a further $200 billion in Chinese imports if Beijing follows through on its threat to retaliate against US duties on imports announced last week.
The tariffs announced last week, which are due to take effect in early July, would affect a combined $100 billion worth of trade between the world’s two largest economies. China and the US have both already imposed tariffs on steel, aluminium and some agricultural goods.
Trade experts say there are plenty of ways beyond tariffs that the Chinese government could retaliate — including slowing approvals for acquisitions made by American companies or stalling products at its ports, and US in the next stage would restrict Chinese investment into America.
“This escalation would be damaging for the US and Chinese economies since global companies, such as Apple, invest in both countries. This would affect not only US businesses but also American consumers. Retailers such as Walmart import goods from China, so prices would go up and living standards would be squeezed,” Linda Yeuh, adjunct professor of Economics, London School of Economics, said.
“And since US goods are sold worldwide, if they are reliant on parts from China, consumers here in the UK and in the rest of the world would also be affected. The same applies to Chinese consumers and producers, particularly since about half of Chinese exports are made by enterprises with foreign investors,” Yeuh said.
