What electric shock treatment and trade wars have in commonhttps://indianexpress.com/article/world/us-china-trade-war-world-economy-donald-trump-5995596/

What electric shock treatment and trade wars have in common

A study published this month by the Federal Reserve reckoned that uncertainty was holding back global growth and may hamper it into 2020.

The world economy may be undergoing a similar jolt from President Donald Trump’s trade wars.

It’s the not knowing that hurts the most.

So say scientists at University College London’s Institute of Neurology, who used electric shocks to show in a 2016 study that the anticipation of pain causes more stress than the actual pain itself.

The world economy may be undergoing a similar jolt from President Donald Trump’s trade wars. While the protectionism may eventually impede demand through slower commerce and frayed supply chains, for now it’s the lack of certainty about what’s to come that’s dealing the biggest blow to companies and forcing them to retrench.

Just this week, the International Monetary Fund estimated concerns about trade have reached nearly 10 times the peaks of prior decades and could shave 0.75 percentage point of the worldwide economic expansion this year.

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Similarly, a study published this month by the Federal Reserve reckoned that uncertainty was holding back global growth and may hamper it into 2020 with the rise in conflicts over commerce already accounting for a 0.8% decline in worldwide gross domestic product in the first half of the year.

The IMF analysis was based on how often words such as “uncertainty” appeared close to terms like “tariffs” in Economist Intelligence Unit reports. The Fed researchers scanned seven major newspapers and the quarterly earnings calls of US companies.

Such studies suggest a cessation of the conflict could inject a boost of animal spirits into the world economy. Indeed, a realization inside the Trump administration that tariffs, if applied widely on Chinese imports, will create self-inflicted economic wounds may be what’s driving the White House to consider a limited deal to defuse the situation.

The unknowns aren’t confined to Asia. A UK government paper this week said Britain is hurtling toward food and fuel shortages, production and trade disruptions, job losses and public disorder if the UK crashes out of the European Union without an agreement. The EU just announced a new trade chief this week, an Irishman known as “Big” Phil Hogan who’s vowing to stand up to a “reckless” Trump when US-EU talks get going.

None of this augurs well for an end to the anticipatory suffering any time soon. Currency strategists at Morgan Stanley expect more economic pain unless the threats of an escalating trade war diminish.

“Markets need to be convinced that more certainty in global trade arrangements is coming,” they wrote in a report to clients on Wednesday. “Ongoing global trade uncertainty is likely to continue to weigh on global data. For this to change, we will need to see markets become convinced that not only is the risk of trade escalation falling, but that the risk of a final, concrete, and irrevocable trade resolution is rising.”