Rising trade policy uncertainty poses a downside risk to growth: Goldman Sachs
The global trade policy commentary and actions are becoming increasingly hawkish, and a potential victory by Donald Trump in the upcoming presidential election could result in significant tariffs on U.S. imports, potentially leading to retaliation and escalation, according to Goldman Sachs economists.
“This rise in uncertainty poses a moderate downside risk to global growth, as companies might delay investments until the policy outlook becomes clearer,” economists wrote.First, during the 2018-2019 trade war, companies in the U.S. and Europe that mentioned trade uncertainty in their earnings calls significantly reduced investment. At the peak of the trade war, mentions of trade policy uncertainty were linked to a 0.5 percentage point decrease in year-over-year investment growth in the U.S.
Regression estimates relating equity returns during these periods to investment suggest that trade-war risks lowered year-over-year public-company investment growth by 0.3 percentage points in the U.S. and over 2 percentage points in the Euro area. “Averaging across these three approaches, our estimates suggest that a rise in trade policy uncertainty as large as the increase observed during the 2018-2019 trade war could lower GDP growth by around 0.3pp in the US and 0.9pp in the Euro area,” said Goldman’s economists.
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