Trade tensions are more than China

Posted by: Paul Donovan

01 Feb 2019

In 2018 global trade was a stable share of the global economy. Global trade has been stable for some years. The changing nature of the global economy suggests we may have hit peak globalisation. Global trade growth did slow in late 2018.

It is clear from the Trump Twitter Feed that the US president has not given up on taxing trade. We have had tweets in praise of steel tariffs, for example. However the US president also seems be willing to come to some sort of trade deal with China. The realisation that taxing trade is a tax on equities may have helped.

Reviving trade may take more than reducing trade tensions with China. The direct result of the US-China dispute has been a change in patterns of trade. A US firm can shift production to Canada. A Chinese firm can shift production to Thailand. Both avoid the trade taxes. However companies may have cut capital spending while waiting for trade tensions to be solved. That includes the uncertainty over NAFTA and Brexit. This matters to trade. A large share of exports goes into capital spending. There is more to solve than just the US China trade tensions, if trade is to improve.

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