The world will grow at a rate slowest in 10 years if the upcoming US-China trade talks fail and the US imposes 25 per cent tariffs on the remaining $300 billion of imports from China, Fitch Rating has said.
The imposition by the US of 25 per cent tariffs on the remaining $300 billion of imports from China would reduce world economic output by 0.4 percentage points (pp) in 2020, Fitch said on Wednesday.
"Global GDP growth would slow to 2.7 per cent this year and 2.4 per cent next year, compared with our latest 'Global Economic Outlook' baseline forecasts of 2.8 per cent and 2.7 per cent respectively," the report said.
Not only the US and China, countries not directly involved in the trade war would also see their GDP falling below baseline, "though in most cases by less than the US and China".
"Korea would be the most severely hit, with GDP more than 1pp below baseline in 2020. Net commodity exporters such as Russia and Brazil would be affected, as slower world growth would push oil and hard commodity prices down", Fitch noted.
Fitch predicted that China's growth rate would be reduced by 0.6 pp while that of US would fall by 0.4 pp, in 2020, if the trade tension escalates.
The imposition of tariffs on all imports from China, being considered by the US administration, would mark a significant escalation of trade tensions. It would see the US levy tariffs on an additional $300 billion worth of goods.
However, Presidents Trump and Xi both said last week that trade talks would resume at the upcoming G-20 meeting, where they planned to meet.