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Trump’s China trade war risks hurting global economy, warns think tank

The OECD cautioned that as much as 0.7% could be knocked off global growth by 2021-22 if the row escalates.

A further escalation of Donald Trump’s trade war with China risks damaging the US and wider global economy, a major international organisation has warned (Brian Lawless/PA)
A further escalation of Donald Trump’s trade war with China risks damaging the US and wider global economy, a major international organisation has warned (Brian Lawless/PA)

A further escalation of Donald Trump’s trade war with China risks damaging the US and wider global economy, a major international organisation has warned.

The Organisation for Economic Co-operation and Development (OECD) cautioned that if the dispute intensified, it could knock as much as 0.7% of global gross domestic product (GDP) by 2021-22.

It comes as the Paris-based think tank cut its outlook for global growth to 3.2% in 2019 and 3.4% in 2020.

The fragile global economy is being destabilised by trade tensions Laurence Boone, OECD

It said growth in China and the United States could come in 0.2% to 0.3% lower on average by 2021 and 2022 if the countries do not resolve their long-running dispute.

In the worst-case scenario, America’s GDP could be more than 0.8% lower and Chinese GDP over 1.1% lower if tensions escalate further.

US President Trump has hiked tariffs on £158 billion of Chinese imports to 25% from 10%, while China has responded with tariff increases on £47 billion of US goods.

The trade row has been knocking global stock markets in recent weeks, sending nervous investors heading for the exit.

Laurence Boone, chief economist at the OECD, said: “The fragile global economy is being destabilised by trade tensions.

“Growth is stabilising, but the economy is weak and there are very serious risks on the horizon.

“Governments need to work harder together to ensure a return to stronger and more sustainable growth.”

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(PA Graphics)

In the UK, the OECD warned that the Bank of England should not look to increase interest rates until Brexit uncertainty clears, and forecast that the next hike would not come until 2020.

It said inflation, which has been running below the Bank’s 2% target, should give it breathing space to keep rates on hold at 0.75% given the worries over the EU withdrawal.

It said: “With inflation close to target, but with large uncertainties remaining, the policy interest rate should be kept constant until there are clear signs of accelerating prices.

“The fiscal authorities should stand ready to respond, should growth weaken significantly as a result of Brexit.”

Its comments came as the latest biannual OECD report saw it increase its forecast for UK growth this year to 1.2%, although that would still be the weakest growth for 10 years.

The OECD had previously forecast growth of just 0.8% for 2019.

It also increased its forecast for UK expansion to 1% in 2020, up from 0.9% predicted in March.

But these predictions are based on the assumption of a smooth Brexit and transition period.

The OECD said Brexit will continue to hamper business spending.

It said: “Brexit-related uncertainties will keep holding back investment until there is clarity about future trading arrangements.

“Consumption will decelerate in line with slower employment gains. The economy should nonetheless benefit from a supportive fiscal stance this year and modest recovery in global growth in 2020.”

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