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Threat of trade war is already hurting growth and could be ‘devastating’ if tariffs go up 

A global trade war would be “devastating” for economic growth as even modest hikes in tariffs would cause as much damage to trade as the financial crisis.
The stark warning from the World Bank is based on governments raising taxes on imports to the maximum level currently allowed under current trade rules – not even the introduction of new barriers.
“A worldwide escalation of tariffs up to the limits permitted under existing international trade rules could lead to cumulative trade losses equivalent to those experienced during the global financial crisis in 2008-09, with particularly severe consequences for emerging markets and developing economies,” said the World Bank in its Global Economic Prospects report.
Protectionist threats cast a dark cloud over future growth. If these threats lead to trade wars, the consequences could be devastating. Even if they do not, uncertainty about economic policy dampens investor sentiment.”
Hiking these tariffs by 2020 would knock 6.2pc off advanced economies’ trade and 14pc from emerging markets’ and developing economies’ trade, the World Bank estimates.
Even without a trade war breaking out, even its threat could be enough to reduce business investment.
This comes at a time when global economic growth is already moderating.
GDP is expected to grow by 3.1pc in 2018, matching 2017’s spurt, before slowing to 3pc in 2019 and 2.9pc in 2020.
The US will slow from 2.7pc in 2018 to 2pc in 2020, the eurozone from 2.1pc to 1.5pc over the same time period and Japan from 1pc to 0.5pc.
Britain will defy the rich world trend with a modest acceleration from 1.4pc this year to 1.7pc in 2020.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
Other threats to growth include higher interest rates.
“A sudden tightening of global financing conditions, combined with disorderly exchange rate movements, would leave highly indebted emerging markets and developing economies particularly vulnerable, with rising debt service costs hampering investment and heightening financial stability risks,” the report said.
Corporate debt levels in emerging markets stand at 86pc of GDP, up by 30 percentage points in the past decade.
Much of that has come in China. But even excluding China the figure is up 10 percentage points.
Almost half of the rise in corporate debt in those non-Chinese emerging markets has been raised in foreign currencies, potentially making the borrowers vulnerable to exchange rate shifts.
This could emerge through further hikes in interest rates by the US Federal Reserve, which is expected to tighten policy several times over this year and 2019.
Threat of trade war is already hurting growth and could be ‘devastating’ if tariffs go up 

Indebted emerging market economies could face trouble as US Federal Reserve chairman Jerome Powell hikes interest rates

Credit:
Carolyn Kaster/AP
Higher rates could be required in part because of tax cuts and higher government spending which are boosting the economy, but may also generate extra inflation which central bankers need to control.
“Rising borrowing costs could substantially increase the burden of debt servicing, which was compressed in recent years by low global interest rates and risk premiums. In turn, rising debt service costs could weaken investment and lower medium-term growth,” the World Bank warned.
“A reversal in capital inflows and sharp currency depreciations could also increase default risks and raise financial stability concerns among economies with external vulnerabilities. Emerging market debt denominated in US dollars remains elevated in many countries and increased in 2017 amid favorable borrowing conditions.”
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