With President Donald Trump’s aluminum and steel import tariffs expected to be signed in the next 24 hours, global markets have refocused on the risks of a major trade war. More damaging measures may yet come, with the White House reportedly mulling broad curbs on Chinese imports and M&A in response to its intellectual property practices.
But while momentum for a trade clash appears to be rising, we see little evidence the broader global trade regime is at risk:
- Eleven nations (minus the US) today signed a revived version of the Trans-Pacific Partnership trade pact. The deal reduces investment barriers and brings preferential trade terms to nearly 500 million people, in economies that generate 13% of global GDP.
- The White House has softened its initial stance on metals, suggesting tariff exemptions for Canada, Mexico and other key allies. This should reduce risks of relatively minor metal tariffs derailing broader NAFTA negotiations, at least in the near term.
- Strong Chinese exports reflect strong global demand, not just bilateral US trade. In the last two months Chinese exports to the US, EU and ASEAN region grew by 25%, 23% and 25% respectively. Broad US trade barriers on China imports would also likely lead to significantly higher costs for US consumers, which could prompt wider political opposition in an election year.
So, while more rhetoric and additional barriers could lie ahead, the trend toward stronger global trade links remains intact. We will continue to monitor the situation, but remain overweight global stocks and risk on. To hear chief economist Paul Donovan on trade on CNBC.