WWRR Vol.2.015

2019 Global Economic and Market Outlook
3. Includes direct effects of the US imposing 25% tariffs on auto imports from 2019, excluding
those from Canada and Mexico, and equivalent trading-partner retaliation.
4. Includes indirect effects on business confidence and investment, assuming uncertainty effects
approximately 1/6 th as large as those during the GFC. Effects are estimated for the US and
scaled for other countries based on their relative level of trade openness.
5. Includes indirect effects of tightening financial conditions for corporates, assuming a 15%
tariff-related fall in corporate earnings and a corresponding increase in corporate spreads
(based on historical relationships). Effects are estimated for the US and scaled for other
countries based on relative corporate credit ratings.
In terms of monetary policy actions in light of the macroeconomic impacts, all central banks are
assumed to react according to a Taylor Rule, with the exception of the ECB and BoJ, where
conventional monetary policy is limited by the zero lower bound on nominal interest rates. Finally,
the IMF assumes that intermediate inputs have limited substitutability in the short term, but that
substitutability becomes more comparable to that among final goods in the long term. The key
results for the US, China, and the World are summarised in the figure below.
Fig 8 Consistent with the IMF’s previous work, the direct effects of tariffs implemented todate
are relatively small, but further escalation and confidence effects pose risks
Per cent
0.2
0.0
Estimated Effects of Tariffs on Real GDP
Level of GDP relative to counterfactual
Implemented
Autos
& pending
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
Market
reaction
Confidence
effect
Total
Remaining
Chinese
imports
-1.4
-1.6
Source: IMF, Macquarie Macro Strategy.
US China World US China World
End of 2020
Long run
The direct effects of the implemented and pending tariffs on the US are estimated to be
relatively small, taking less than 0.2% off the level of GDP by the end of 2020. However, should
President Trump follow through on his additional threats or confidence be adversely affected,
these effects become much more significant, taking around 0.75% off the level of US GDP by
2020 and over the longer term (if permanent).
Consistent with the tariffs being primarily on imports from China, China is the most heavily
affected country by trade actions to-date. The IMF’s estimates suggest that implemented and
scheduled tariffs could take around 0.4% off the level of Chinese GDP by 2020, and that this
would be roughly doubled should the US move ahead with threatened tariffs. Confidence
channels could further amplify these effects in the short term, although over the longer run the
IMF estimates suggest that the effects could wane to around 0.6%.
Finally, at the global level, the direct reduction in global GDP (out to 2020 and in the long term)
is estimated to be less than 0.3%, even with further tariff escalation. While not insignificant by
any means, this would not be enough to thrust the global economy into recession. However,
based on the IMF estimates, the short term drag on global growth could be much more
significant after incorporating potential confidence effects (~0.75%)
In our view, the magnitude of potential confidence effects is likely to strongly depend on the extent
to which the escalation in tariffs over the latter half of 2018 continues over 2019. In particular,
should there be a ceasefire in the trade war, consistent with recent positive developments, then
confidence effects are likely to be relatively contained. However, if President Trump follows
through on threatened tariffs, or even escalates further, we suspect the effects will be “non-linear”,
with confidence channels likely to materially amplify the hit to global growth.
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