Trade tensions between the U.S. and China stalled a global recovery and are continuing to endanger investment and growth, the secretary general of the OECD warned Monday.
“We were in the middle of a recovery when all these decisions about trade started and not only did it stifle the recovery, it basically has produced the slowdown and the potential for greater damage is still there,” Angel Gurria told CNBC.
“Everybody is betting today… on a deal between China and the U.S. but the problem is that on the face of it the tensions are getting greater and, second, the problem – the spillover effect of this tension – is becoming more and more evident,” he told CNBC’s Joumanna Bercetche at the start of the OECD’s Spring Forum in Paris.
Key themes for this year’s forum range from challenges to international cooperation and the global economic outlook, to the future of work and trade and competition in a digital age. Heightened global trade tensions between China and the U.S. are likely to dominate the forum, however.
Relations between the two economic superpowers deteriorated earlier this month when President Trump announced that he would increase tariffs on $200 billion in goods from 10% to 25%. China responded by upping the tariffs on $60 billion of U.S. goods.
Talks to end the Sino-U.S. trade dispute are believed to have hit a roadblockand in the meantime, the latest data for April showed slowing consumer and industrial activity in both the U.S. and China. Trump has insisted the tariffs on Chinese goods are having an impact, however, saying they were causing companies to move production from China to Vietnam.
Europe has also been threatened with U.S. import tariffs that would punish its car industry. Although such tariffs are yet to be imposed. Trump said on Friday that the EU treated the U.S. “worse than China, they’re just smaller.”
Gurria said trade tensions were impacting growth and investment and had made the OECD shave almost 1% of its own global growth predictions in the last 12 months. A year ago, it predicted 3.9% growth in 2019, now it is forecasting 3.1%. It is due to release its latest economic outlook Tuesday.
“Uncertainty is the greatest enemy of growth and when you don’t have investment because of trade uncertainties, then of course as a rule of thumb, growth will come down and this is what’s happened in a relatively short period of time. It’s really a very bad scene today, it’s a very great source of concern,” he said.
“Why do you invest? You invest to produce, to sell, to get a reasonable profit. But if you do not know if you’re going to have access to the market, you don’t know what tariff you’re going (to face) or whether there will be access at all, then what you do then if you’re a responsible investor is that you hold back, if you’re a responsible consumer you hold back,” Gurria said.
“Investment is the seed of the growth of tomorrow and this is why, after a short period of time, we’ve had this enormous cut in the projections of growth going forward.”