A global escalation of the China-US trade war could cost nearly $1.5 trillion in lost trade by the end of 2020, according to Atradius, a global credit insurance provider with a strategic presence in over 50 countries.
That is the equivalent of all Japanese exports grinding to a halt for two years, in the case of Hong Kong for three years and if you are located in Singapore it would mean no exports for a whopping four years, the financial expert said in its report.
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 2% rise currently expected, it stated.
The application of increasingly stringent protectionist measures, particularly in trade between the US 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%.
On the flipside, some trade from these economies is being diverted from China to the US, said the expert.
Vietnam, for example, has seen a 40% 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 2%, it added.
“As trade policies remain uncertain and trade relationships tense, insolvencies are on the rise. We expect trade growth to slow to only 2% this year, before recovering slightly in 2020, and business failures to increase by 2% this year,” remarked Andreas Tesch, the chief market officer of Atradius.
"Against this backdrop, the most prominent downside risk is that businesses become increasingly vulnerable, especially in corporate debt. For this reason, it is of paramount importance for suppliers selling on credit to perform an accurate assessment of their buyers’ creditworthiness availing themselves of the most up to date credit information," stated Tesch.
"This to avoid serious cash flow issues that might set back their business. In this regard, commercial credit insurance and its embedded information services remain the most effective tools for insuring the livelihood of suppliers, should buyers fail to pay," he added.
Albirich Tang, the regional head of risk services for North Asia and Guangdong, said: "At Atradius Asia, since President Trump took office in 2017, we have proactively built the possible effects of the trade war and its further escalation into our underwriting strategy."
"We have been working closely with our clients and have been successful in advising to them that it is important to balance and diversify their customer portfolios especially on counterparty risks in China and in nearby countries which are exposed to the trade war,"" observed Tang.
"As a result, we have been able to help our customers grow their business profitably and at the same time, managing the trade credit risk," he added.
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