LONDON — In ordinary times, worries about the health of the global economy tend to prompt leaders of the largest countries to join forces in pursuit of safety.
These are not ordinary times.
The biggest threat to global fortunes has become the intensifying conflict between the two largest economies on earth, the US and China. As their leaders openly contemplate how to inflict pain on each other, the rest of the world now frets about becoming collateral damage in an escalating trade war.
Only a week ago, China and the US appeared to be moving toward cooling their hostilities, while global economic prospects were improving. Worries about a worldwide slowdown were giving way to burnished hopes for expansion.
Fears about the weakening of China’s economy were easing as President Trump advertised a soon-to-be-signed trade deal. That lifted the outlook for Asian economies dependent on global commerce like Japan, South Korea, and Taiwan. Europe, a perpetual source of concern, was flashing signs of renewal. Defying skeptics, the US economy remained on a tear.
But late last week, as Trump sharply increased tariffs on $200 billion worth of Chinese goods, the world found itself grappling with the likelihood that the trade war will cost treasure. The concern mounted on Monday as Beijing retaliated and the Trump administration detailed plans to slap 25 percent tariffs on virtually all goods that China sends to the US.
For businesses and consumers alike, it all raised the prospect that they would soon be paying higher prices for goods, a reality that discourages commerce.
“An escalation scenario would be terrible all around,” said Gabriel Sterne, head of global macro research at Oxford Economics in London. “A negative impact on trade flow is going to be bad for global growth for several years. It’s bad news for almost everybody.”
If both sides follow through on their threatened tariffs, China’s annual economic output will be reduced by 0.8 percent while the US will see its annual growth reduced by 0.3 percent, according to Oxford Economics.
Those numbers are small in the grand scheme of things, but the damage could be felt acutely within industries that are especially exposed to the trade war, such as American agriculture and Chinese electronics manufacturers. The weakness was underscored on Wednesday by the latest indications that China’s economy is slowing and by lower-than-anticipated figures for retail sales and factory orders in the US.
The harm could be especially severe for countries that are most dependent on trade, including Singapore, Malaysia, Mexico, and Japan.
At the center of trouble sits China, the world’s most populous country. Its breakneck development over recent decades has added hundreds of millions of consumers to the global marketplace while supplying a vast assemblage of low-cost goods.
Given that China is the source of roughly one-third of the world’s economic growth, any disruption to its trade amounts to a global event.
Trump has designed his tariffs to wound China as he seeks to pressure its leaders to agree to cease subsidizing state-owned companies, stop demanding intellectual property from US businesses, and open its markets to foreign competitors. Until last week, the president was insisting that a trade deal with China was imminent. Then, he abruptly accused China of reneging on its commitments and opted to increase tariffs.
The sharp escalation comes at an especially fraught time for the world economy, jeopardizing what had seemed to be a stabilizing, if gradually slowing Chinese economy.
Volumes of freight imported by China surged in April, according to an analysis of data by UBS, the global investment bank. Worldwide, airfreight was up in March compared with a year earlier, according to the International Air Transport Association.
But these trends are fragile. Airfreight has declined nearly 4 percent since its peak in 2017. Outside China, manufacturing in Asia has been slowing for much of the last two years. A trade war between the US and China — two countries that collectively account for roughly 40 percent of world economic output — would almost certainly aggravate the situation.
Exports to China from Japan, Taiwan, South Korea, Thailand, and Vietnam have plunged by about 14 percent over the past year, or about $6.3 billion, according to analysis from Oxford Economics.
Those same countries have lifted their exports to the US by a similar percentage. But the US is a less important trading partner, and the increase amounts to less than $2 billion.
In Europe, the trade war presents another unwanted source of concern at a time of tenuous progress.
Concerns that Britain’s unruly departure from the European Union would damage trade across the continent had abated — at least in the immediate term — as London and Brussels agreed to extend their fractious divorce proceedings until the end of October.
Germany, the Continent’s largest economy, had been moderating fears of weakness, with data showing an increase in factory orders and exports. Germany’s exports to China were up by more than 5 percent in March compared with a year earlier.
But much of what Germany sends China amounts to the piece parts of China’s industrial apparatus — car parts, engines, electrical machinery and other gear folded into factory operations. If Chinese factory operations slow in the face of American tariffs, China’s appetite for German goods will most likely wane.