Trade war could knock three percent off global GDP: Bank of France study

PARIS (Reuters) - An international trade war with wide-ranging tariff hikes could cut global gross domestic product by as much as three percent, according to a study by the French central bank on Thursday.

The direct impact of a generalized 10 percentage point increase in import tariffs could alone knock one percent off global output after two years, economists at the Bank of France found.

“This effect could be amplified by a fall in productivity, a rise in the financing cost of capital and a decline in investment demand,” they wrote in the study.

“Taking all these factors into account could result in lowering global real GDP by up to three percent after two years,” they added.

The administration of U.S. President Donald Trump has triggered a wave of trade tensions since the start of the year, with steel and aluminum import tariff hikes, and threats of further actions on cars shipped to the United States.

Bank of France governor Francois Villeroy de Galhau said on Wednesday that a trade war was the biggest risk facing the global economy and the mere threat could weigh on business confidence and in turn deter companies from making investments.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta