Global share markets plummeting more than 20 per cent, economies shrinking and inflation re-ignited is the gloomy prognosis
for a trade war from giant investment bank UBS.
Key points:
- A full trade could see global equities tumble by more than 20pc and global GDP tumble according to UBS
- The escalation to a full-out war with a blanket 30pc tariff on Chinese imports plus retaliation could start as early as October
- Key protagonists US and China likely to be the biggest losers
While the current situation is bad, the fully-blown "trade war" scenario — where the US imposes all the actions it has so far threatened
and China retaliates as expected — things would become decidedly ugly.
Global GDP growth would fall by 1 percentage point and inflation would rise by 0.3 percentage points.
The biggest losers would be the key protagonists — the US and China — with GDP falling with a thud, down 2.5 and 2.3 percentage
points respectively.
The US and China would also be hit with higher-than-average inflation spikes.
On UBS's modelling, the 10 per cent tariff would see the key US equities benchmark, the S&P500, fall 10 per cent.
The full-blown trade war would more than double that decline, plunging US equities deep into bear territory as average
earnings fall by around 15 per cent.
Asian equities would fall by 24 per cent and Europe by 25 per cent.
US hardest hit
There are plenty of other consequences too.
Global interest rates would fall, US 10-year bonds would drop around 50 basis points and the expected hikes from the
US Federal Reserve next year would be taken off the table.
Lower growth would also translate to demand for oil falling by around 500,000 barrels per day and prices tumbling
back under $US60 a barrel.
While mutually assured pain is inevitable, the US may suffer the most in the case of an all out trade war.