Trump’s escalation of the trade war is going to trigger a “chain reaction of negative events around the world,” warns the boss of one of the world’s largest independent financial advisory organizations.
The warning from Nigel Green, the founder and CEO of deVere Group, comes as global markets are in turmoil as Donald Trump’s administration announced a long list of new products that tariffs on $200 billion worth of goods from China will be levied against.
Mr Green comments: “Trump’s escalation of the trade war between the world’s two largest economies is going to trigger a chain reaction of negative events around the world.
“It is going to lead to higher inflation in the U.S, as import tariffs raise the cost of imported goods while domestic producers find that they can increase their prices as foreign competition weakens. This means interest rates will be hiked and the dollar will go up.”
He explains: “China’s cheap goods have helped keep prices, and therefore U.S. and global inflation, low.
“To counteract increasing inflation, the U.S. Federal Reserve is even more likely to raise interest rates. A jump in rates will, of course, strengthen the dollar.
“A stronger dollar also increases stress in emerging markets, many of which have borrowed heavily in recent years in dollars and who now find interest and capital repayments on these loans have shot up in local currency terms. In addition, emerging markets are particularly vulnerable to a downturn in exports resulting from a rise in quotas and import by the U.S, given that exports are a key driver of growth for many under-developed countries with China the most obvious example’.
Mr Green goes on to say: “Trump’s trade war is a masterclass in self harm for the U.S. and global economy.”
The deVere CEO stated last week that investors must now avoid complacency and ensure their portfolios are properly diversified to mitigate risks and take advantage of potential opportunities that all bouts of market volatility bring.
He said: “Investors need to brace themselves for months of heightened posturing from the different parties, which is likely to increase market turbulence.
“And as Trump potentially marches off to a trade war, a good fund manager will help investors sidestep the risks and embrace potential opportunities.”
Meanwhile, Credi Suisse opines
The direct hit on China GDP of tariffs should be small at 0.1% – 0.2% of GDP this year, even including a worst case scenario around the new $200bn list. Of course this will rise significantly in 2019 if no settlement is reached before year end.