These Countries Face the Biggest Trade Risks

The backlash against globalization comes with a heavy price.

A wave of disruptions is rocking the world trading system. Britain’s divorce from the European Union has turned messy, while the U.S. trade war with China has investors on edge. The cost of such risks is substantial, according to an analysis by Bloomberg Economics of OECD data. About 2.3 percent of global GDP is tied to trade flows that are at risk from greater protectionism, equivalent to almost $2 trillion in output, according to an analysis by Bloomberg economists Maeva Cousin and Tom Orlik. Higher tariffs would dent that activity—not wipe it out.

In a world where supply chains cross national borders, few countries are safe from a global trade war. A smartphone exported from China to the U.S. has inputs from across east Asia, and even from inside America itself. That explains why investors are closely watching trade negotiations between the administrations of President Donald Trump and his Chinese counterpart Xi Jinping. Looming over the horizon: Trump’s threat to slap tariffs on foreign cars. Among major economies, the U.K., China and Germany face the biggest risks.

Brexit negotiations are hanging by a thread. A no-deal outcome would be a major blow to the U.K.’s trading relationship with Europe, according to Bloomberg Economics. A less severe Brexit is possible, with the U.K. staying in the single market. At a minimum, there will be a period of uncertainty as talks come to a head. In total, about 0.9 percent of global GDP is exposed to Brexit trade risk. No surprise: the U.K. is the most vulnerable major economy, with 10 percent of GDP at risk. Ireland isn’t far behind, at 9.7 percent. For the euro area as a whole, 2.7 percent of GDP is exposed.

Trump says he wants a deal. So does Xi. The coming weeks could be pivotal, with intellectual property and enforcement among the sticking points. Even if a deal gets done, existing tariffs may stay in place. In total, 1 percent of global GDP is exposed to the trade risk from the U.S.-China conflict. The dispute comes at an unfortunate moment for China, already facing its slowest growth since 1990. About 3.9 percent of China’s GDP relies on trade with the U.S. America depends less heavily on exports. Still, 1.3 percent of its GDP is at risk.

Trump is considering recommendations from the Commerce Department on auto tariffs. Commerce probed whether foreign cars represent a threat to national security. While the department’s findings aren’t known, the auto-industry is bracing for a higher tariff. About 0.4 percent of global GDP is tied up with auto sales to the U.S. About 4 percent of Mexico’s output depends on exports of cars and car parts to the U.S., followed by South Korea (1.9 percent), Hungary (1.7 percent) and Canada (1.6 percent).