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  • 4 min

Long-lasting shock on the world economy My weekly column

  • 11 April 2019
  • Philippe Waechter
  • Eurozone
  • Investment
  • Negative Shock
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Concerns and uncertainties on world economic activity having been gathering pace since the fall. The swift decline in world trade reflects this change in pace, moving into the red with a contraction of 0.4% in January vs. yoy growth of 4% in September 2018. This turnaround has triggered concern from the OECD and the ECB, prompting them to slice back growth projections for the euro area in particular.

The very heart of this economic question is whether this shock is permanent and persistent, and in this respect, there are two interrelated questions worth noting, as well as another third aspect.

The first point is the political explanation for this downturn. Trade tariffs applied by the White House have shifted the balance of trade between the US and China, leading to a swift slowdown in trade in Asia since the start of the fall and acting as the main contributing factor behind the decline in world trade as a whole. By targeting China directly, Donald Trump is actually damaging the entire region.

The other aspect is the uncertainty triggered by the White House’s political choices, as doubts on trade following border tariffs are further heightened by the threat of fresh trade moves. A case in point is the German automotive sector, which could be hampered by a border tax of 25%, as the US threatens to impose tariffs on $11bn in European exports to the US in retaliation for European subsidies to Airbus. The WTO will have the final say, but there is also a further threat as Boeing is now struggling with recent problems on its 737 Max.

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