Global trade is on course for its worst year since the financial crisis, with only 0.3% growth anticipated in 2019, according to Dutch bank ING.
The downturn in world trade growth at the end of 2018, in which trade levels dropped more than 3%, has been exacerbated by damage from the ongoing trade war between the U.S. and China, according to an analyst note from the Dutch bank.
ING Head of International Trade Analysis Raoul Leering projected that while 2020 is likely to show growth of around 2%, that improvement could be wiped out if the trade war between the world's largest economies drags on into next year.
The figures represent a marked decline from the 3.3% trade growth in 2018 and 4.8% in 2017, prior to the implementation of a series of combative trade policies by President Donald Trump's administration.
Leering suggested that trade will adjust to better-than-expected first-quarter economic growth in the U.S., the eurozone and China, but that global trade volumes still have substantial catching up to do before they can match those of last year.
After the catch-up is completed, adjusting to higher levels of GDP and industrial production, ING projects that trade growth should reach 1.2% in 2019. However, analysts anticipate that the ongoing negative effects of tariff hikes from the U.S. and China will drag this down to 0.6%.
Trade war into 2020
President Trump recently announced plans to impose 5% tariffs on all Mexican imports in an attempt to strong arm the U.S.'s southern neighbor into halting illegal immigration, a move widely criticized even within the Republican party. He vowed to steadily hike those tariffs up to 25% by October if Mexico did not comply.
Speaking to reporters at the Irish airport of Shannon Thursday, he also threatened to increase tariffs on China by a further $300 billion. Recent events indicate that Trump will continue to use tariffs as a political weapon if China, Mexico, the EU or Japan don't acquiesce to his demands.
"Although the president has said that the stock market is the barometer of his policy success, the negative response of the equity market to his decision to hike tariffs on Chinese imports, did not withhold him from deploying this weapon again last week," Leering said.
Trump is therefore prioritizing campaign promises, such as getting better trade terms for the U.S. and reducing illegal immigration, over economics ahead of his 2020 re-election bid.
ING analysts calculated the effect of U.S. policy on world trade using an average drawn from three possible scenarios, and concluded that trade will grow no more than 0.3% in 2019, the worst year since the "great collapse of trade" in 2009.
The first scenario assumes that recent tariff hikes and threats are enough to force China, Mexico, the EU and Japan to strike trade deals with the U.S. by the end of the first quarter of 2020.
The second and most likely scenario, according to ING, suggests things will "get worse before they get better," with an initial escalation in the U.S.-China trade war and negotiations with the EU, Mexico and Japan before deals are struck in the first quarter of 2020.
The third and most catastrophic scenario for world trade is continuing escalation without results. This involves the U.S. imposing a 25% tariff hike to all Chinese goods, hiking car tariffs by 20% at the end of the six-month delay period in November, and levying a tariff hike of 10% on half of the other imports from Japan and the EU after they retaliate in kind.
This model assumes no deal will be struck by the time of U.S. election in November 2020, and leads to a negative effect on world trade in 2020 of 1.1%, leaving growth at 0.6%, almost five times less than the ideal scenario of worldwide resolutions in the coming months.