March 2019 could usher in a total 💩storm for the global economy

Brexit and a US/China trade war, all at once.
Brexit and a US/China trade war, all at once.
Image: Reuters/Jason Lee
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Uncertainty about the future of the global economy has roiled stock markets in recent weeks, but what’s scheduled to hit in March could be worse than anything we’ve seen so far.

To start, that’s when the US and China’s trade war is scheduled to kick in again. There’s a lot of confusion between Washington and Beijing about what, exactly, Donald Trump and Xi Jinping agreed to during their working dinner meeting in Buenos Aires on Dec. 1. But one thing was confirmed by both sides: They’ve temporarily suspended putting any new tariffs on the other country’s exports.

That temporary reprieve ends at either the beginning or end of March, depending on who you talk to. Trump administration officials have laid out very ambitious targets they’d like to see addressed by then, including fixing broad, longstanding problems with the Chinese economy, like its dependence on intellectual-property theft and government subsidies. If negotiations aren’t satisfactory, the US is planning to raise tariffs on $200 billion in Chinese imports to 25% from 10%, and China is expected to retaliate. Trade experts call the idea of reaching a satisfactory agreement on such a wide range of topics in that timeframe “magical thinking.”

In the same month, the United Kingdom will be lurching towards a March 29 deadline to officially exit the European Union. It’s uncertain whether members of parliament will approve prime minister Theresa May’s nearly-600 page deal proposal, but even if they don’t, Britain has to Brexit stage left.

All told, the global economy may be struggling with the worst of both worlds by March: a “no-deal” Brexit and a renewed trade war between the US and China. If so, “markets will likely fall substantially, corporations could lay off workers and cease investing in expansion, and consumers may end up paying for both of these,” says Sam Natapoff, a former official with the US Department of Commerce and New York state trade advisor.

The US/China trade war has some precedent, Natapoff notes, in the US/Japan confrontations of the 1980s. But the path for reconciliation is less clear here. “Through painful and extended negotiations, an agreement was ultimately reached, as the Japanese eventually backed down and agreed to voluntary export restraints,” Natapoff says. That’s unlikely today, because the US and China don’t share the same history of military or economic cooperation as the US and Japan did then.

Overall, global merchandise exports hit $17.8 trillion in 2017, according to the World Trade Organization (pdf, pg. 29), while global commercial services were $5.3 trillion. No one has made any specific predictions about how these figures would be affected by this worst-case scenario, but the US, China, and the EU are the largest economies by gross domestic product in the world; any hit to trade in either is going to have global repercussions.