Lengthy trade wars could cut global investment by one-tenth, warn economists

Businesses across major economies including the EU are expected to cut back on investment plans due to increased uncertainty.

In particular, this climate has been created by the trade policies of the Trump administration in the US, which currently affect third-country imports as a broader trade war is shaping up.

According to the latest report from Oxford Economics, trade policy uncertainty alone is predicted to dramatically cost the global economy, mainly due to a drop in investments.

The report examines four possible scenarios to see what impact trade policy uncertainty could have on investment and consequently on the global economy.

“Investment is markedly weaker this year, with an undershoot of about 4% in the US and China, and about 2% in the Eurozone and UK,” Senior Economic Advisor Michael Saunders and Lead Economist Dr Daniel Harenberg wrote in the report.

In 2023, business investment came to levels equal to 22% of GDP in China, 15% in the US, 12% in the Eurozone, and 10% in the UK. The predicted undershoots would produce a significant but not devastating effect on GDP growth.

The report said that the effects of uncertainty are in addition to the direct effects of higher tariffs, which themselves are likely to lower growth while lifting inflation.

Escalating trade tensions further, US President Donald Trump has also proposed a 200% tariff on EU alcohol imports, a threat he said would remain until the EU removed a 50% duty on US-made whiskey. The European Commission is threatening countermeasures on up to €26bn worth of US goods.

Meanwhile, the White House is closely watching the EU’s application of its digital competition laws. The US could hit back if the bloc decides to fine one of the major American tech