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Talking trade

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

The share of global trade in the world economy has stayed steady recently. Indeed, it might have gone up a bit. US President Trump's policies increased US imports and global trade. (Income tax cuts and company tax cuts given away to investors tend to be spent).

So no trade war, but risks are rising. Canada and the US continue to argue over the "not-NAFTA" trade deal. The threat to tax Americans buying goods partially made in China is real. What should investors remember?

  1. This is not the 1930s. The 1930s saw everyone fighting everyone else. This is the US fighting everyone else, and everyone else fighting the US.
  2. Tariffs are consumer taxes, but they do not hurt at once. It took about four months for taxes on washing machines to fully hit US consumers.
  3. Equity markets will react more than economies to trade taxes. Most trade is done inside or between large listed companies. Small companies are more important to the economy, but less important to trade.
  4. US tax increases would be a reason for the US Federal Reserve to slow policy tightening. This would be because higher US taxes on trade would slow the US economy.