What to do when trade policy uncertainty could significantly slow economic growth? Perhaps the only way is to estimate the risks and try to prevent such a situation. Analysts at Goldman Sachs have delved into this question. They have noticed a trend towards a more aggressive stance in global trade policy. Adding fuel to the fire is the potential victory of Donald Trump in the upcoming US presidential election. This could lead to higher tariffs on US imports, prompting retaliatory measures from other countries and escalating conflicts, Goldman Sachs predicts.

"This rise in uncertainty poses a moderate downside risk to global growth, as companies might delay investments until the policy outlook becomes clearer," economists said.

The bank's experts have analyzed these risks to investment and economic growth in three scenarios.

First, many companies in the United States and Europe cut back on investment during the 2018-2019 trade war. Concerns about trade policy among business leaders correlated with a 0.5 percentage point decline in investment growth compared to previous readings.

Second, publicly traded companies exposed to greater risk from trade tensions also significantly reduced their investments. This was particularly evident in commodity-related and manufacturing sectors.

Third, international data collected before the 2018-2019 trade conflict showed that an increase in the US trade policy uncertainty index during the dispute with China was associated with a 2 percentage point decline in projected investment growth. Against this backdrop, the United States reduced its investments in major economies. However, in leading exporting countries, the reduction was more significant — up to 3 percentage points, according to Goldman Sachs.

"Averaging across these three approaches, our estimates suggest that a rise in trade policy uncertainty as large as the increase observed during the 2018-2019 trade war could lower GDP growth by around 0.3 pp in the US and 0.9 pp in the euro area," economists concluded.

The investment bank assumes that rising uncertainty in global trade policy poses a downside risk to economic growth in the second half of 2024 and into 2025, particularly in Europe.