Cary Huang
SCMP Columnist
by Cary Huang
by Cary Huang

From the US-China trade war to Trump’s impeachment inquiry and Brexit, record levels of political uncertainty are battering the global economy

  • Geopolitical tensions and rising protectionism are pushing global uncertainty indices to, or near to, record highs, leaving world economic growth and trade teetering on a knife edge

Uncertainty is the No 1 enemy of investment markets. That is why indices devised by social scientists to measure and quantify uncertainty in the marketplace are highly sought after by investors and decision-makers.

As uncertainty clouds the global economy, several such indices are at or near record highs. These include the World Uncertainty Index, World Trade Uncertainty index, and their sub-indices on global economic policy uncertainty and global trade policy uncertainty.
Researchers and index compilers cited the trade war between the United States and China, Brexit, and US President Donald Trump’s impeachment inquiry in the House of Representatives as the most important reasons behind soaring uncertainty indices.
The World Uncertainty Index previously spiked after the September 11 terror attacks, the severe acute respiratory syndrome ( Sars) outbreak, the second Gulf war and the euro debt crisis. The World Trade Uncertainty index, meanwhile, has since jumped 10-fold from previously recorded highs.

In an apparent reflection of the US-China trade row, the global trade policy uncertainty index started to rise in the third quarter of last year, coinciding with the start of the punitive tariff war.

The index declined in the fourth quarter as Washington and Beijing reached a truce to halt the escalation of tariffs at the G20 meeting in December, in Buenos Aires. It spiked again this year following another round of US tariff hikes announced for March 1.

Policy uncertainty indices have also witnessed record highs in the US and China. For example, the Economic Policy Uncertainty Index for China, developed by Scott Baker, of Northwestern University, Nick Bloom of Stanford University, Steven J. Davis of University of Chicago, and based on data in the Post, has gone up sharply since December 2017 and is over 900 points, the highest since it was first measured in 1995. It moved between zero and 400 points before 2017.

With uncertainty surrounding the European Union, US and China, the world’s three largest economies, investors are pessimistic about the prospects for world trade growth. Indeed, the economic and geopolitical uncertainties generated by the US-China trade war and Brexit have damaged growth, as business and consumer confidence erode.

Growth in both the US and Chinese economies has seen an accelerated slowdown this year. US growth dropped from 3.1 per cent in the first quarter to 2 per cent in the second, and is expected to fall further, to 1.8 per cent, in the third quarter, according to the Atlanta Federal Reserve’s GDP tracking gauge.

China’s economic growth has decelerated at a quarterly rate of 0.2 percentage points this year: from 6.4 per cent in the first quarter to 6.2 in the second and 6.0 in the third quarter.

In Europe, business confidence have been shaken by worries over Britain’s exit from the EU and fears that the exit will be tumultuous, without an arrangement governing future commerce across the English Channel.
The trade war is also menacing many export-driven economies. Japan, South Korea, Taiwan and Singapore are witnessing either a slowdown in growth or a contraction as result of diminished sales to China.
Rising protectionism and the trade war are the main drivers of lower global growth prospects, according to the International Monetary Fund and other major international institutions. The IMF, World Bank, Organisation for Economic Cooperation and Development, and Institute of International Finance have all lowered their forecasts for global growth.

US-China trade war pushes world economy closer to the edge

Obviously, the US-China trade war and rising global protectionism are pushing the world economy closer to the edge. The longer it lasts, the greater the uncertainty for the global economy and growth.

Policy transparency and stability are highly sought after by investors in their quest for certainty in forecasting outcomes. That is why they hate uncertainty the most and see politicians who create uncertainties as political enemies.

Cary Huang is a veteran China affairs columnist, having written on this topic since the early 1990s