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Five investors on the first casualties of a looming trade war

Five investors assess the potential consequences of escalating and discuss whether there is scope for a more subdued outcome.

Fears over the possible impact of an escalating multi-front trade war waged by the US have given the markets a bumpy ride recently – and things look set to get even bumpier at the end of this week.

With US tariffs on Chinese goods and retaliatory countermeasures poised to take effect, five investors assess the potential casualties, and whether we could still step back from the brink.

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Fears over the possible impact of an escalating multi-front trade war waged by the US have given the markets a bumpy ride recently – and things look set to get even bumpier at the end of this week.

With US tariffs on Chinese goods and retaliatory countermeasures poised to take effect, five investors assess the potential casualties, and whether we could still step back from the brink.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Silvia Dall’Angelo

Senior economist at Hermes

Trade tensions between the US and China will remain in focus this week, as the two countries will impose higher tariffs on a range of respective imports.

On 6th July, the US will apply a 25% tariff on a $34 billion tranche of Chinese imports. The Chinese reaction will be immediate and commensurate.

The short-term macro impact of the new measures will be limited. New US tariffs will concern less than 1.5% of overall Chinese exports, and they are worth less than 0.1% Chinese GDP.

However, other sneakier consequences from trade wars are hard to quantify. First, the likely unravelling of global supply chains would lead to lower productivity and lower living standards across the board.

In addition, trade wars might have wider geopolitical ramifications and their long-term legacy might be a more fragmented global landscape, more vulnerable to tensions and conflict.

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Larry Lau

Trium Diversified Macro fund manager

International trade is a big deal. Donald Trump's manifesto is to bring fair treatment by US trade partners, and we can't fault him for trying.

The stakes are high and divisions within the US administration are clear to see.

Given the lopsided trade surplus – some $350 billion of net exports – with the US, one expects China to be concerned by an escalation in disputes.

However, in the long-run the Asian giant is arguably better placed to redistribute trade flows. The odds are still on an agreement that improves US trade terms and in the detail is tolerable to China.

The current disparity in global rate cycle together with the bedding-in of substantial debt-funded fiscal policy is dollar supportive and doing the US current account no favours.

China is happy to lean on this open door through its exchange rate management. Expect near-term volatility and strong reaction as markets sniff a resolution.

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Joseph Amato

Neuberger Berman president and equity chief investment officer

When the US-China trade rhetoric turned sour in March, we acknowledged this was likely to dominate the news headlines throughout 2018, but unlikely to be the big driver of market sentiment.

However, the noise has gotten harder to ignore these past couple of weeks and it certainly has dented market confidence.

Risks are rising from this game of chicken. Markets are not yet ready to trust the Trump administration on trade negotiations.

The next few months will be a vital proving period for that trust, during which the noise and anxiety are likely to increase.

We still believe the two biggest players are likely to swerve from their collision course and avoid a truly damaging outcome.

When the timing is more propitious, the argument goes, a similar offer with more detail and clearer enforcement mechanisms will break the deadlock.

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Hartwig Kos

SYZ Asset Management co-head of multi asset

Donald Trump’s negotiation style is nothing short of bullying. In the spirit of his book 'The Art of the Deal' he keeps on pushing and pushing and pushing to get what he is after. 

That served him well in the 80s when he built his property empire, but applying it to international affairs is a bit more difficult.

The problem with this attitude is international trade negotiations are different to dealing with a bunch of contractors. There are unintended consequences and feedback loops.

Besides the retaliatory measures, tariffs have as much of an economic impact on the US economy as on the countries they are imposed on.

The person that ends up paying is the US consumer in the form of higher end prices. That is what tariffs are: hidden consumption taxes and nothing else.

So, unless he treads more lightly, Trump might, instead of 'making America great again', end up only making it greatly expensive for his electorate.

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Arno Lawrenz

Global investment strategist at Ashburton Investments

The Trump administration announced that for national security reasons, tariffs would be levied on Chinese imports.

Whilst Trump appears intent on promoting the idea national interests are at the heart of his decision, it does increasingly appear as if it is playing more to the Trump agenda than anything else.

The ‘golden thread’ of these actions appears to be a deliberate strategic attempt to manipulate policy for geo-political advantage – particularly as a response to growing Chinese economic and political influence. 

So, the tariffs most likely point towards a desire by the US to realign political and economic incentives in its favour.

After all, Trump’s election manifesto did point to a new vision of ‘America First.’ The administration’s most recent actions starkly reinforce this.

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