Brief on the Impact of the Escalating US-China Trade War

The recent escalation of the US-China trade war, marked by new tariff threats and firm retaliation, poses a significant headwind to global economic growth and stability. Current assessments point to the following key implications:

* Global Growth Drag: Economic models project that a full-blown trade war could reduce global GDP growth by 0.5% and world trade volume by 3.4% by 2030. The U.S. and Chinese economies are expected to bear the brunt, with estimated GDP losses of 1.3% each .

* Fundamental Reshuffling of Trade: The conflict is accelerating the decoupling of the U.S. and Chinese economies, leading to a major reallocation of global trade flows. While trade between the two nations plummets, other regions like Southeast Asia (ASEAN), the EU, and Latin America are experiencing increased trade and investment as companies seek alternatives .

* Persistent Inflationary Pressures: Tariffs function as a tax on trade, raising costs for businesses and consumers. Estimates indicate the U.S. tariffs could cost American households an average of $1,300-$1,600, contributing to inflationary pressures .

* Increased Market Volatility: The high uncertainty surrounding trade policy and the risk of miscalculation by either side remain a tail risk for financial markets. The situation demands close monitoring of diplomatic developments .

In summary, the trade war is a deflationary shock for the global economy that is simultaneously disrupting established supply chains and creating new, fragmented trade networks. This environment is likely to sustain market volatility.

I hope this note provides a clear and useful overview. Please feel free to reach out if you require a more detailed analysis on any specific aspect.