Market Comment: Trade tensions: from tiff to spat to squabble

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There are many words used to describe the stages of trade disagreements until the final, no holds barred “Trade War” breaks out. We are not there yet, but instead have moved from tiff to spat to what now might be described as a squabble. The most serious tensions are between the US and China, and the situation most concerning to European equity markets is between the US and Germany – and by extension, the EU.

So far, the tariffs that have been implemented remain just a small percentage of total trade. US import tariffs against all parties and the respective retaliations, now total around USD 150 billion. But if all the threatened tariffs and retaliations are actually implemented, the total amount of world trade affected could come close to USD 1 trillion. This is about 1.2% of global gross domestic product and almost 6% of global trade.

But this is not what we expect. We continue to believe that negotiations will prevail and that serious repercussions, such as a significant negative effect on global growth, will be avoided.

While there is still no trade war, this does not mean that the consequences so far are not real and measurable. We are reaching the stage where certain segments, such as US agriculture, the German automotive sector and Chinese commodities producers, are increasingly under pressure. The text that follows explains what has happened so far, how markets have reacted and what we believe it means for financial markets and investors.
 
Richard de Groot, Global Head Investment Centre

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