The prospect of a guns-blazing US/China trade war cratered stocks last week, but as cooler heads prevailed in recent days managers have gained a longer view of the possible gap between rhetoric and reality.
A harsh tariff barrier on sensitive Chinese imports worth up to $60 billion (£42 billion) had appeared to make good on Trump's campaign promises, and earned a rapid reciprocal threat from Beijing.
Both sides have taken steps to de-escalate this week as stock markets plunged. Can the trade moderates prevail, and what will be the consequences if they don't?
Robert Lea, head of global equity research at Ashburton Investments, said that even a discussion of increased trade barriers was alarming, given the wealth of evidence they created a negative sum game.
In his opinion Trump’s Twitter statement that ‘trade wars are good, and easy to win’ was ‘wishful thinking’.
Tariffs on steel in 2002 and Chinese tires in 2009 led to higher prices and ulitmately cost more jobs than they created, he said, adding that a tariff on steel was ‘likely to create an imbalance of supply and demand, driving domestic steel prices higher and acting as a drag on profitability in the manufacturing sector’.
'The impact of Trump’s tariffs could have far-reaching consequences for the US and global economy. We [would] expect consensus to downgrade growth estimates for the US economy.
'The rise in prices will also act to raise inflation forecasts, making it more likely the Federal Reserve will increase rates at a faster pace than the market currently anticipates’.
Bryan Collins, head of Asian Fixed Income at Fidelity International was more confident that despite a clear-out of some Wall Street establishment figures in the White House as trade hawks gained the upper hand, the short term panic was not justified.
He said he saw ‘potential buying opportunities’ in the trade spat and while ‘the news related to trade protectionism will lead to pockets of volatility’, Asian markets are in a good position to weather any loss in exports.
‘Besides exports, consumption is a key pillar for Asian markets’ growth. In China, consumption contributed to over 60% of 2017 GDP’.
‘There are question marks over the extent to which tariffs actually impact the overall trade picture’ as ‘one country’s loss is another one’s gain and thus overall net spend is more or less left unaffected’.
‘The current trend in the US and globally is in favour of greater net spend, which is supportive of global trade and emerging market outperformance’.