An all-out trade war would severely damage the US and Chinese economies but could also be a boon to countries like Canada and Mexico, the International Monetary Fund said Wednesday. The world's top two economies themselves would be the biggest losers in the event of a 25 per cent hike in duties on all trade in goods, the IMF said in a report released ahead of next week's spring meetings, to be held jointly with the World Bank.
Bilateral US-China trade could fall by up to 30 per cent in the short-term as a result and by as much as 70 per cent later on -- taking sizable chunks out of both countries' economies. The 2019 spring meetings fall just as the US and Chinese officials say they are in the home-stretch of negotiations to resolve their eight-month trade war, in which Beijing has put tariffs on all its US merchandise imports while Washington has slapped duties on about half of its Chinese imports -- more than USD 360 billion in two-way goods trade.
Citing success in the talks, US President Donald Trump has suspended plans to raise duties on a USD 200 billion tranches of Chinese goods to 25 per cent, keeping them at the current 10 per cent. According to a range of models cited by the report, the hypothesis showed annual growth in China could be 1.5 per cent lower, while such a scenario could shave as much as 0.6 per cent off growth in the US.
"The effect on China is typically larger across all models, as exports to the United States represent a larger share of the Chinese economy (than vice versa)," the report said. Under the scenario explored by the IMF, Canada and Mexico could ultimately benefit as they export more to the United States, making up for the shortfall in US imports from China.
And according to one model, these shifting export relations among countries would mean that, while the US trade deficit with China would fall somewhat, there would be "no economically significant change" in either country's overall trade balance. A separate statistical model showed China would ultimately cease to be "the number one exporter of electronics and machinery to the United States", like Canada, Mexico and other Asian countries picked up the slack.
(With inputs from agencies.)