Will a trade deal boost investment?

Posted by: Paul Donovan

18 Oct 2019
  • Global growth slowed this year. Consumer spending, though weaker, remains generally good. Growth is slower because investment is slower. Why is investment weakening? Could a US-China trade deal help?
  • Investment may be structurally lower. The way we work is changing. Economies are more efficient in using investment. If people work from home, less office investment takes place. If people use their own computers at work, less IT investment takes place.
  • The rise of trade taxes makes investment more expensive. Investment is the most import intensive part of the economy. A tax on trade will tend to hurt investment more than other areas.
  • Trade taxes have increased uncertainty about global supply chains. Two thirds of global trade is done by multinational companies. Their supply chains use multinational investment. Uncertainty about trade means uncertainty about investing – not just in the US and China, but globally.
  • Would a trade deal revive investment and boost global growth? The way we work would continue to change, regardless. Lower trade taxes would lower the cost of investing, and that should help. However, uncertainty about the world trade order is unlikely to disappear. A trade deal would have to be trusted. Trust is in short supply today.

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