While the issue of the trade war between the US and China has dominated news flow this year, July was the first month in which it became a reality with US tariffs on $34 billion of Chinese goods going live.
However, despite the tariffs, it seems that world trade has remained resilient following an earlier fall in the year. The latest figures for July show that only 0.8% of world flows were affected by the trade volumes directly affected by the tariffs limited to as little as -0.01% – -0.1%. Indeed, total world trade grew 1.1% in July along with an upward revision to the June figure, which now stands at -0.3% from -0.8% initially. Furthermore, momentum growth in world trade has now risen to 1%.
The image above (CPB World Trade Monitor) shows the change in world growth by region, resulting in a net increase of 1.1% in July
Business Investment Remains Resilient
It also seems that business spending has been relatively unaffected by the quarter on quarter business investment in the US, the Eurozone, Japan and China (which together accounts for over 50% of world trade) not down significantly over Q1 2018. As well as this, many forward-looking indicators and PMIs remain above 50, signaling no weakness in cyclical drivers of world trade meaning that the softness in world trade is down to structural factors.
Risks Remain Going Forward
However, this doesn’t mean that trade tariffs won’t negatively impact world trade going forward as the effects of the tariffs might be magnified by global value chains, posing the risk of disruption and price increases. Indeed, the threat of further escalation in the trade war might weigh on business investment decisions, dragging growth down.