Trade War Would Lower Global GDP By 0.4%; US, Mexico, Canada Most Affected: Fitch

Rating agency Fitch has warned that escalating global trade war could cut world GDP growth to 2.8% from 3.2%, and notes that the U.S., Canada and Mexico would be most affected by escalating trade tensions.

Looking at the most vulnerable countries, Fitch sees GDP growth 0.7% below baseline forecast in 2019 for the U.S. and Canada, and 1.5% in Mexico, with GDP staying significantly below its baseline in 2020, according to Bloomberg.

In its analysis, the Fitch forecast includes the impact from tariffs, but non-tariff barriers related to Nafta’s collapse could be at least as significant.

Curiously, Fitch said China would be less severely affected, with GDP growth about 0.3% below the baseline forecast, which however is not reflected in the market, which recently entered a bear market on escalating growth conerns as a result of trade war. Fitch also predicted that China would only be affected directly by U.S. protectionist measures.

Meanwhile, Fitch sees the U.S. being affected by both its imposition of import tariffs and the simultaneous retaliatory measures from countries or trading blocs.

Separately, even countries not directly involved in the trade war would see their GDP falling below baseline, with net commodity exporters would be more severely hit, while some net commodity importers would benefit from lower hard commodity prices.

Last week, Fitch said that the global trade war kicking off between the United States and China will not trigger a spate of credit rating downgrades, Fitch’s top sovereign analyst says, but warned the dollar’s growing strength could.

This makes intuitive sense because as we also reported last week, a majority of companies have complained that the negative impact from FX has so far outweighed trade war, although after today’s poor results from GM, Ford and Fiat that may be about to change.