US-China Trade War Damage May Be "Irreversible"

With the trade war between the US and China on the brink of re-escalating once more, a journalist told ABS-CBN News Philippines that damage to global supply chains from the trade war might be "irreversible."

President Trump threatened to slap tariffs Monday on the remaining $300 billion of Chinese exports to the US if China's President Xi Jinping didn't meet with him at the 2019 G20 Osaka summit on 28–29 June 2019.

Simon Rabinovitch Asia editor for The Economist told the ABS-CBN host that economic warfare had interrupted complex global supply chains, which took several decades to construct, are now "less efficient."

"Even if the tariffs are reversed, the damage itself is irreversible. This is like a massive oil tanker and since it's begun to shift direction, begun to shift course, it can't go back to the way it used to be,"

The global economy has experienced an "extremely long recovery" from the dark days of the 2008 financial crisis, and the business cycle tends to revert into the contraction phase every decade, he said.

However, there's hope; he said domestically-driven economies like the Philippines and India are "a little bit sheltered" from the global synchronized slowdown driven by the trade war.

The best way to visualize just how serious Rabinovitch's claim of the "irreversible" damage from the trade war is to monitor the global flow of trade. Below is a chart on YoY changes in global trade as measured by the IMF's Direction of Trade Statistics, courtesy of BMO's Ian Lyngern. It shows the absolutely collapse in global exports as broken down into three categories:

  • Exports to the world (weakest since 2009),
  • Exports to advances economies (also lowest since 2009), and
  • Exports to the European Union (challenging 2009 lows).

In short, even before President Trump slapped China with 25% on $200 billion in goods, global trade had already tumbled to levels last seen during the financial crisis depression. One can only wonder what happens to global trade after the latest escalation is filtered through the global economic system.