(Bloomberg) -- Fears of a trade war are overblown and the economy could be in for a boost within months as those concerns fade, according to Citigroup’s Willem Buiter.
“There’s a big difference between the fear of trade wars and the realization,” Buiter, a special economic adviser at Citigroup, said in an interview with Bloomberg Television’s Tom Keene and Francine Lacqua. “Provided the uncertainty that is holding back capital expenditure now is not resolved in a way that confirms our worst fears, we could have a pleasant surprise coming at the end of the summer.”
The fear of an all-out trade conflict dominated the global economy this week ahead of a July 6 deadline for President Donald Trump to decide whether to slap tariffs on $34 billion of Chinese goods. Canada and the European Union have already retaliated against U.S. tariffs on steel and aluminum, and Trump has threatened to further escalate the conflict by targeting car imports.
Yet all this may just be distracting “rhetoric” that the media are paying too much attention to and should be considered merely as a “game of bluff and counter-bluff,” Buiter said.
“What we have seen so far is basically round one of a potential trade conflict,” he said. “With a bit of luck there will be no second round and no further escalation.”
This could all change if Trump were to retire from the World Trade Organization, something that he has repeatedly told his advisers, according to an Axios report. No policy process has been put in place to seriously implement the idea, the report said.
“It would be extremely serious because it would mean that the multilateral framework for negotiating trade disputes and conflicts and disagreements is going to be replaced by a portfolio of a bilateral arrangements that is much more likely to result in conflict,” Buiter said. “I have again hope that the pudding won’t be eaten as hot as it’s served, that the U.S. will declare victory if it achieves some modification.”
The trade-war noise has already contributed to a recent cooling down of global growth. A gauge of economic activity worldwide has been retreating since recording highs at the end of last year, although it continues to signal expansion.
“The fear of a trade war undoubtedly has a dampening effect everywhere,” Buiter said. “We are not talking downturn here but a slowing down of growth.”
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