Trump's trade war is starting to hurt sectors like air travel and financial services

REUTERS/Kevin Lamarque

• There are growing signs that tariffs between the US and China are beginning to hurt the services sector.
• The World Trade Organization said Monday that global trade in commercial services has fallen below its long-term average of 100.
• That could have a particularly significant impact on growth in the US, where the services sector accounts for more than two-thirds of economic activity.
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As the US-China trade dispute drags into its 18th month, there are growing signs that tariffs are beginning to spill over into the services sector.

The World Trade Organization said Monday that global trade in commercial services fell to 98.4 in June, nearly five points from a year earlier and below its long-term average of 100. The WTO gauge includes service sectors such as air travel and finance.

"Most of the barometer's component indices declined in June, indicating a broad loss of momentum across service sectors," the report said.

Trade in service sectors have generally held up better than trade in goods, the report added, which are more directly affected by trade tensions. But that is expected to change as the US and China expand tariffs to far more finished products, increasing costs for businesses and consumers in both economies.

Read more: Dem candidates stumble on how to counter Trump on the trade war with China

That could have a particularly significant impact on growth in the US, where the services sector accounts for more than two-thirds of economic activity. In early September, the International Air Transport Association said passenger and cargo demand contracted for a ninth consecutive month and urged the US and China to reach a trade deal.

"Trade tensions are weighing heavily on the entire air cargo industry," said Alexandre de Juniac, the director-general of IATA. "Higher tariffs are disrupting not only transpacific supply chains but also worldwide trade lanes."

Economic research consultancy Pantheon Macroeconomics forecasts that if the 15% tariff were fully passed through to products, it could cut real after-tax income growth in half and pull consumer spending growth down to 1.5%.

"The slowdown story was initially a manufacturing story," said Ian Shepherdson, the consultancy's chief economist. "The damage now is being done by the trade war. Fed funds at zero, which the president wants, wouldn't change that; the uncertainty over trade, the very real loss of markets in China and, soon, the hit to consumers' real incomes, are the problems."

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