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An escalation in the trade war between the US and China could take a heavy toll on global growth by 2021, creating price pressures that would force the Federal Reserve to step up monetary tightening, the OECD warned on Wednesday.

With the global expansion past its peak, there was a risk that tit-for-tat trade restrictions could turn a soft landing for the world economy into a hard one, the Paris-based international organisation said in its latest economic outlook.

“We’re not talking about a plateau [of growth] any more, but a slowdown,” said Laurence Boone, the OECD’s chief economist. The organisation expects global growth to ease from 3.7 per cent this year to 3.5 per cent in 2019 and 2020 — a slight downgrade from its last forecast but still a healthy rate of expansion.

It highlights rising trade tensions as one of the main risks to this benign outcome.

The tariffs already imposed by the US and China will do limited damage, the OECD said, leaving output in each country around 0.2-0.3 per cent lower than otherwise by 2021, with mild negative effects for other countries in the short term.

If the US acts on plans to impose a 25 per cent tariff on $200bn worth of Chinese imports from January, and China retaliates, this would double the impact on each country’s output and push US consumer prices 0.6 per cent higher than otherwise.

However, if Donald Trump carries out threats to slap a 25 per cent tariff on all remaining imports from China, and Beijing reciprocates, the short-term costs would be “considerably higher and broader”, the OECD said — especially after factoring in the effects of more uncertainty on business investment plans around the world.

In this worst-case scenario, global GDP would be 0.8 per cent below baseline by 2021, with US output more than 1 per cent below baseline and China’s output hit even harder. Global trade would decline 2 per cent and business investment across the OECD would decline by about 2 ¾ per cent on average.

US consumers are likely to bear the majority of the burden in the form of higher prices, the OECD said — and if tariffs were applied to a broader range of consumer goods, monetary policymakers would be more likely to respond.

In the most extreme scenario, US interest rates would rise around ½ percentage point above baseline, fuelling the dollar’s strength and adding to the financial pressures on emerging economies.

The OECD also flagged up the risks of a sharp slowdown in China, volatility in oil prices, Brexit uncertainties and the fragility of some eurozone banks, saying the interaction of these risks could lead to “a harder than expected landing”.

It urged governments to arm themselves against a downturn by planning projects that could be rolled out rapidly if the need arose for a co-ordinated fiscal stimulus.

“With high levels of [public] debt, it is difficult to use monetary policy in the same manner as before, so the logical conclusion is that countries must sit at the table and discuss co-ordinating fiscal stimulus,” Ms Boone said.

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