Trade wars could cost world $6.5tn by 2030 – Swift study

Economic fragmentation caused by geopolitics is projected to cause GDP losses ranging from 1.2% to 6% by 2030, a study supported by payments network Swift shows.

The report by authors from Economist Impact establishes three scenarios. In the first, the “new normal”, recent trends of declining capital flows continue. In the second scenario, “escalation”, tensions increase and international financial flows decline by twice as much as they have in recent times. In the third scenario – “mitigation” – some of the underlying issues are dealt with and tensions are reduced by half.

The “new normal” would lead to a reduction in global GDP of 2.6% or $2.8 trillion. Employment across the world would decline by 4.3%.

“Escalation” could result in a reduction in global economic output of as much as 5.9%, or $6.5 trillion, with employment dropping by 9.1%. In this scenario, nearly 280 million fewer jobs would be created along with slowing innovation and financial inclusion efforts, Swift said in a statement accompanying the report’s publication.

“Mitigation” would lead to a reduction in global GDP of 1.2% or $1.3 trillion, along with a 2.1% decline in global employment.

Swift began in the 1970s as an interbank communications system to facilitate cross-border flows. In more recent years it has also been used to enforce western sanctions against banks in countries such as Iran, Venezuela and Russia. The US Treasury’s Office of Foreign Assets Control can cut off any bank from the Swift network, and thereby deny it access to the dollar market, if it is found to be facilitating financial flows to hostile states.

The report warns of increasing economic inequality and funding costs, and reductions in foreign direct investment, banks’ profitability and levels of lending if economic fragmentation were to increase.