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Trade uncertainty to trim US$850bn global output

Trade uncertainty to trim US$850bn global output

A truck drives between shipping containers at a container terminal at Incheon port in Incheon, South Korea, May 26, 2016.  REUTERS/Kim Hong-Ji/File Photo

Trade policy uncertainty driven by the Trump administration’s escalating dispute with China means hundreds of billions of dollars in lost US output and as much as US$850bn lost globally through early next year, research published this week by the Federal Reserve suggests.

The Fed researchers analysed newspaper articles and corporate earnings calls to estimate trade policy uncertainty, finding it has recently “shot up to levels not seen since the 1970s”. The Fed researchers then estimated the blow such uncertainty delivers to economic activity, as businesses pull back on investment and production. They concluded that globally and in the United States, its impact is around one per cent to GDP.

With US GDP estimated at about US$20tr, and world GDP at about US$85tr, a one per cent impact would put the drag from trade uncertainty at about US$200bn to US GDP, and US$850bn to global GDP, according to Reuters calculations.