‘Trade war escalation could spike insolvencies’

A global escalation of the trade war could cost nearly USD1.5 trillion in lost trade by end 2020, according to a report by Atradius. Trade policy uncertainty is forecast to contribute to an increase in the number of corporate insolvencies in advanced markets, after nearly a decade of sizeable annual improvements. In the case of a severe intensification of the trade war, trade growth could grind to a halt this year, driving growth in corporate insolvencies much higher than the two percent rise currently expected.

The application of increasingly stringent protectionist measures, particularly in trade between the United States and China, is forecast to have negative effects on other economies as well, in particular the main trade partners of the eastern giant, such as Japan, Taiwan, Vietnam and South Korea, where exports to China have slumped by 10 to 20 percent. On the flipside, some trade from these economies is being diverted from China to the US. Vietnam, for example, has seen a 40 percent surge in exports to the US this year, benefitting from their competitive labour costs and export sectors, especially textiles. In Japan, on the other hand, the opportunities for trade diversion are less drastic as relative costs are more expensive and their exporting sector is more devoted to higher value-added goods. As such, insolvencies are forecast to increase by two percent.