The article discusses the expected persistence of uncertainty in global trade policy, despite the approaching “Liberation Day” on April 2. According to Standard Chartered’s economist Madhur Jha, the heightened trade policy uncertainty (TPU) is likely to lower global GDP growth by 1.0-1.5%. This impact is expected to be most significant for the US and other major economies. The article highlights three main channels through which heightened TPU can affect global growth: a drop in trade and capital flows, a decline in business investment, and lower consumer confidence.
The article also notes that academic studies suggest that the negative impact of TPU is not limited to tariffs alone, but can have broader effects on the economy. Moreover, the article cites a two-country structural vector autoregressive (SVAR) analysis, which estimated the impact of rising TPU on selected emerging market (EM) economies. The analysis found that the drop in output and CPI was small and short-lived, with no significant impact on short-term interest rates. However, some currencies, such as those of Mexico and Indonesia, did weaken in response to heightened TPU, suggesting that other factors, such as central bank credibility, are at play.
Overall, the article concludes that the expected continuation of trade policy uncertainty will likely have a significant impact on global growth, particularly for major economies. However, the impact on interest rates and exchange rates is expected to be limited, and other factors may also play a role.