Growth in global commerce has slowed sharply since the US-China trade dispute escalated in mid-2018, and an array of economic indicators suggest that the year-long row is having an increasing effect on the global economy.
Negotiators from the world's two largest economies are preparing to meet in Washington on Thursday in an effort to resolve an eleventh-hour impasse in their trade deal talks.
Evidence is accumulating that the tariffs which now affect more than 50 per cent of bilateral trade between the US and China are curbing global commerce, driving up prices for American consumers and holding back business investment as companies seek to restructure their supply chains.
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Merchandise trade volumes grew only slightly faster than global output last year, largely because of a fourth quarter slump, according to the World Trade Organization's estimates.
It expects a similarly anaemic performance in 2019, a forecast that is backed up by figures published by the Netherlands Bureau of Economic Analysis which show a 1.1 per cent fall in global trade volumes in the year to February.
The global slowdown in trade is not only because of tariffs; other factors — ranging from Brexit to a soft patch in Chinese domestic demand — have also played a part. But trade between the two protagonist nations has been hit particularly hard.
US exports to China were down 30 per cent year-on-year in the first quarter of 2019 and Chinese exports to the US were down 9 per cent — and fell by 2.7 per cent year-on-year in April, figures released on Wednesday showed.
The drop in bilateral trade in the first quarter was worth around US$25 billion ($38b), or 0.5 per cent of global trade, although these figures may overstate the longer-term impact, as some companies rushed orders through at the end of last year in a bid to pre-empt higher duties.
In Donald Trump's telling, the disruption has been worth it: America's "great economic results" are partly because of his penalties on Chinese imports, he asserts, with the costs being largely borne by China.
But — contrary to Trump's claims — US tariffs have been paid entirely by domestic importers and consumers.
Researchers at the Federal Reserve Bank of New York, Princeton and Columbia universities found no evidence of foreign exporters lowering prices and concluded that even if the US government was able to make good use of the extra revenues generated from tariffs, the loss to US real income had reached US$1.4b per month by the end of 2018, totalling US$6.9b in the first 11 months of last year.
If existing tariff levels remain in place, around US$165b of trade per year will be redirected to avoid them, the researchers estimated — implying heavy additional costs for businesses.
A separate study whose authors include World Bank chief economist Pinelopi Goldberg estimated the aggregate annual loss to the US economy was US$7.8b and noted that the protection afforded by US tariffs was concentrated in electorally-sensitive rust-belt states, while foreign retaliation targeted agricultural states where support for Trump was strongest in 2016.
However the tariffs are unlikely to have a major impact on either country's economy overall; the effect has been softened in the US by tax cuts and a more dovish monetary stance and in China by domestic stimulus policies.
The direct impact on US growth is likely to be modest even if Trump acts on his threats to hike tariffs further. Increasing tariffs on US$200b-worth of exports from 10 to 25 per cent "would be a tax increase of roughly 0.5 per cent of GDP . . . much less than Trump's fiscal expansion", according to the economist Paul Krugman.
China would be harder hit. Economists at Barclays estimate that a 25 per cent tariff on US$200b of exports could cut Chinese growth by half a percentage point over 12 months, and as much again if Trump acted on his threat to penalise exports worth a further US$325b.
The real economic worry, though, is about the consequences that Trump's policymaking could have for business confidence.
Economists at ABN Amro argue that last year's global slump in manufacturing might reflect "the more pernicious indirect effects" of the trade conflict on business confidence and financial conditions — in which case this week's fresh escalation could have similar consequences, prolonging the industrial malaise.
Chad Bown, a senior fellow at the Peterson Institute for International Economics, said many companies were reluctant to commit to investments until they had a clearer sense of US policy aims.
As the trade tensions linger, there are signs that the pattern of global commerce is beginning to shift in response.
Although China's regional trade partners have shared its pain — exports to China from Japan, South Korea, Thailand and Vietnam have fallen steeply — these countries have also increased their exports to the US.
And in the end they may stand to gain from trade diversion. Chinese and US investment in developing Asian economies has surged according to the Asian Development Bank, suggesting that companies are starting to shift production to other countries in the region in order to escape punitive duties.
That trend is likely to continue. "There is a very strong incentive [for China] to decouple [its trade] from the US," said Larry Brainard, economist at TS Lombard. "What we have seen so far is the tip of the iceberg."