The year 2020 will be interesting for international trade. The US-China trade row has already been tough on growth. Sensing increased risk, companies have slowed new investment. Consumers in many countries, except in the US, have throttled back on spending, which has slowed down growth elsewhere.
GDP projections among larger economies for next year are generally in the low double digits, except for Germany which won’t break the one percent mark. Exposed as they are to demand for their exports, weakness in that sector may hurt investment and employment.
The famously frugal Germans may make things worse by refusing to spend more on infrastructure, leaving any fiscal expansion up to the European Central Bank, which is not known for risky pump priming. France will muddle along at around two percent GDP growth. This assumes that the US will not hit the EU with tariffs on imports of automobiles or parts. Higher tariffs on Airbus jets, French Cheese and Scotch whiskey are factored into these projections.
The UK will break one percent growth but barely, as businesses and consumers wait to see what happens with Brexit. Assuming the UK leaves the EU at some point in the new year, there will be a protracted period in which the terms of the divorce agreement are hashed out, one of them being conditions and a timetable for doing bilateral trade deals with other countries including the US.
It will take a long time to realize any economic benefit from leaving, and the economy and overall competitiveness could get a lot worse.
The US seems to have dodged a recession for the moment, but the economy is likely to soften as voters and consumers prepare to go to the polls in November to elect a president and members of Congress. GDP growth is expected to be about two percent, more than a percent lower than 2019. One wild card is in what direction the US-China trade relationship will go. If there is no deal and more tariffs are applied, companies and consumers will feel the pain, exacerbating an already weakening economy. Any reduction in consumer spending is likely to push up unemployment, which has been at historic lows during the last couple of years.
If a trade agreement is reached but involves mainly agricultural purchases, the deal could be criticized as an election year stunt that squandered a chance to reset the trade relationship on terms more favorable to the US in exchange for support from farmers. Alternatively, even a modest deal with Mexico and Canada could free up companies’ cash sitting on the sidelines, generating a half to a full percentage point of GDP. Whether this boost registers by US election day; will keep campaign strategists up at night.
China’s economy is also slowing with growth anticipated to be six percent or about the same as 2019. China has many stimulus levers to push should growth slow further, but the trade conflict with the US will weigh on business confidence. 2020 will largely be spent coming to grips with the impetus to decouple parts of the interconnected economies dealing with high technology.
China’s investments in the US will remain minuscule compared with pre-2019, and US investment in China will wait to see how the Chinese government responds to the chilly climate that some pundits have called the early stages of a Cold War. Myriad disagreements over human rights, national security and the South China Sea will test the leadership of both countries and their ability to compartmentalize trade.
No matter how it turns out, 2020 will be an interesting start to a very consequential new decade.
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