Trump trade war biggest risk to world economy: German experts

Trump's tariffs on steel and aluminium have sparked fears of a global trade war. (Photo: AFP/Alex Wong)

"An escalation of the trade conflict would damage international value chains and in the medium term threaten the international rules-based trading system," warned the German Council of Economic Experts - known as the "Wise Men" although one member is a woman.

The economists highlighted other dangers in a regular report, including a disorderly British departure from the European Union, a tricky Italian election outcome dominated by populists, "geopolitical risks" from war and conflict and a financial crisis triggering a sudden slowdown in the Chinese economy.

But "frictionlessly functioning world trade is of central importance for the continuation of the global upturn," they said.

That made the threat to trade from Washington the biggest factor in their judgement that "risks to economic development have recently increased."

Trump has ordered border taxes of 25 per cent on steel imports and 10 per cent on aluminium, provoking promises of retaliation from partners like the European Union - which Trump in turn vowed to meet with further levies of his own.

EU Trade Commissioner Cecilia Malmstroem and representatives from national capitals have rushed to Washington to try and turn the president aside from a transatlantic trade showdown.

So far they have little to show for their efforts.

Other Trump policies met with a warmer response from the German economists, who noted that massive tax cuts and spending increases could "strengthen growth momentum in the US more than predicted" - boosting the economies of Washington's trading partners.

For Germany, the experts upped their economic growth forecast for 2018 slightly, to 2.3 per cent, while their first prediction for 2019 called for a slight slowdown, to 1.8 per cent.

Easy-money policy from the European Central Bank and planned government spending increases under Chancellor Angela Merkel's fourth government are pushing Europe's largest economy to grow at a faster pace than it can maintain for the long term, the economists said.