China forum warns no silver lining in trade stand-off

The negative impact globally of an all-out trade war between the US and China would outweigh any minor benefits

Trade talks between China and the US must reach a conclusion before March 1.

An all-out trade dispute between the US and China would have marginal benefits for a select group of countries, but overall it would detract from global economic growth and raise the risk of a “new cold war”.

That is the view expressed by two speakers at the UBS Greater China Conference in Shanghai yesterday on a potential US-China trade war.

History “gives us enough reason to be worried”, said Fred Hu, a UBS board member and chairman of Primavera Capital, a China-based investment firm. “Conflict between the two seems inevitable.”

Mr Hu also said there were real risks — if a resolution wasn’t found — of China and the US entering a “new cold war or an actual war”.

“Trade wars are quite negative and there are no winners in such a conflict,” he added. “If a deal can be struck in March that is a very good beginning … but there will be challenges ahead.”

The US and China are continuing discussion over their trade relationship. However, a conclusion must be reached by March 1, or new tariffs will be imposed.

UBS global chief economist Arend Kapteyn said the bank had cut its forecasts for global economic growth by 20 to 30 basis points due to the impact of the trade dispute.

For the US, UBS has narrowed the 2019 impact of the trade war from its initial estimates but now expects growth in the world’s largest economy to print at 2.5 per cent annually, rather than above 3 per cent. For China, UBS has pencilled in growth of 6.1 per cent for 2019 after factoring in a 40 basis point hit from the trade fallout.

Mr Kapteyn cautioned that while the International Monetary Fund had singled out Europe as a potential beneficiary of the US-China tensions, he hadn’t seen early signs of that.

“We are seeing no evidence of that … there is some modest evidence of Germany gaining some share,” he said.

UBS expects that Vietnam, Malaysia, Mexico, Canada and potentially Korea may receive a residual boost to trade flows, despite the net impact for global growth being negative.

The impact would be felt through prices, sentiment, reduced investment and potential job losses, Mr Kapteyn said.

He believed a willingness to negotiate a solution to the trade spat on the US side “had increased”.

Separately, NAB strategists yesterday told clients sentiment would hinge on how the US and China trade talks played out.

“Whether this pessimism continues for the rest of 2019 will largely depend on whether there is a near-term resolution to the trade war,” they said.

“Some sort of truce should be more likely given recent market developments — data suggests both China and the US will slow in 2019, effectively giving Trump and Xi little choice but to seek a truce.”

Mr Hu said China had come a long way over the past 40 years on its reform agenda and “conditions are ripe” for a new round to further encourage productivity.

“It’s a great opportunity for economic transformation.”

The author travelled to China as a guest of UBS