Blog Trust. A valuable but scarce commodity

Posted by: Paul Donovan

13 Dec 2019
  • Any US-China trade deal puts the world economy in a better place than three months ago. The US will have lower taxes. Trade taxes are mainly paid by large companies. Markets like the idea of a tax cut focused on equity-listed companies.
  • The US economy and the world economy are still in a worse place than three years ago.
  • For thirty years, large companies invested in global supply chains. Global supply chains worked because global trade rules were known and trusted. The US attracted foreign investment as a link in these supply chains.
  • Now the trust has gone. Investment in developed economies has slowed dramatically since early 2018. Foreign investment into the US has slowed. Foreign investment into China has slowed. Would a Phase 1 trade deal rebuild trust in global trade structures? It seems unlikely. The US has reversed trade agreements with Argentina and Brazil. A company investing in a global supply chain may worry that a Phase 1 trade deal will not last once Chinese food prices decline, or the US elections are held. Without that trust, investment will be limited. That means that the global economic boost from a Phase 1 deal will be limited.

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