World Bank forecast underscores cost of US trade war

Boston Globe

a day ago

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'The world economy today is once more running into turbulence,' Indermit Gill, chief economist of the World Bank, wrote in the report. 'Without a swift course correction, the harm to living standards could be deep.'
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The United States enacted across-the-board 10 percent tariffs on imports and 50 percent tariffs on steel and aluminum imports this year. It has also threatened 'reciprocal' tariffs on dozens of trading partners and raised tariffs on Chinese imports to 145 percent before lowering them to allow for trade negotiations.
The tariffs have pushed the average effective U.S. tariff rate to the highest level in a century.
The World Bank released its new forecasts as officials from the United States and China held their second day of trade talks in London. In recent months, the world's two largest economies have each imposed export controls limiting the other's access to a broad range of items critical to high-technology and military applications.
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A temporary trade truce reached last month between the countries had shown signs of faltering. The latest round of discussions are aimed at preventing trade tensions from escalating again.
The World Bank estimates that if global tariff rates were cut in half, global growth would be 0.2 percentage points stronger over the next two years. It argues that developing countries, which have some of the highest tariffs in the world, should also lower their trade barriers to help stimulate economic growth.
'Economic cooperation is better than any of the alternatives — for all parties,' Gill said.
Overall, growth in emerging markets and developing economies is expected to continue to outpace expansion in advanced economies this year. But growth remains relatively sluggish in low-income countries, where expansions are not happening fast enough to make up for economic losses that were incurred during the pandemic and its aftermath.
The country facing the biggest downgrade from the World Bank's projections in January is the United States, which initiated the trade fights. U.S. output is poised to slow to 1.4 percent this year, from 2.8 percent in 2024. That is nearly a full percentage point below the January estimate.
'The rise in trade barriers, heightened uncertainty and the spike in financial market volatility are set to weigh on private consumption, international trade and investment,' the World Bank report said. It added that investment was likely to cool 'due to record-high uncertainty, the rise in financing costs, and reduced domestic and external demand.'
In China, growth is expected to slow to 4.5 percent from 5 percent in 2024 — in line with previous forecasts.
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The World Bank predicted that China's export growth would slacken because of the U.S. tariffs, but that government fiscal support would help prop up Chinese consumption and investment activity.
The trade war has triggered drastic shifts in the flow of goods from China, most notably a sharp slowdown in exports to the United States. China reported Monday that shipments to the United States in May fell more than 34 percent from a year earlier, the steepest decline since 2020. The slowdown may have contributed to Beijing's willingness to meet in London for more trade talks, experts said.
This article originally appeared in
.