Is this where the world wants to be?

Posted by: Paul Donovan

13 May 2019
  • US President Trump tweeted that talks with China are where the US wants them to be. Chinese officials indicated talks will take place in Beijing soon. The US is expected to unveil plans to tax absolutely everything partially made in China today. The Chinese are expected to respond to last week's US taxes.
  • Earlier trade taxes were relatively easy to evade. This is why real global trade has held stable as a share of the economy. Broader trade taxes are harder to avoid. Economically, the real damage comes from the uncertainty trade taxes produce – and that may be hard to reverse.
  • A quick resolution of the trade dispute would allow global economic growth to stay around trend (for the eighth year in a row). The uncertainty of a drawn out dispute would push growth below trend. An escalation of the dispute would cause a significant global growth slowdown. Escalation could be enough of a policy error to cause a recession, but not this year.
  • Saudi Arabia has suggested that two of its oil tankers were sabotaged off the coast of the United Arab Emirates. US Secretary of State Pompeo is in Europe today to talk about the situation with Iran.

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