How could trade tensions affect global markets?Contributor Maria Paola Toschi
At the root of the dispute is the technology sector, and US and Chinese negotiators are unlikely to find common ground.
Maria Paola Toschi
The trade dispute between the US and China shows few signs of resolution. Why are global tariffs rising, which economies are most vulnerable and how can investors position themselves for this more challenging environment?
Since his election, President Trump has sought to correct what he and his administration perceive to be trade injustices working against the US economy. These policies have considerable backing from the US electorate and the Democratic Party. Whilst China is the key focus, there is still a risk that the dispute broadens to the EU. This is weighing on global growth, largely because companies are deferring investment. If a further escalation prompts companies to cut jobs then the risks to this expansion will rise, regardless of more dovish central banks. It doesn’t seem politically optimal for the President to take risks with the expansion given he hopes to gain a second term in November 2020. But our conviction on the outlook for the trade conflict is not high and investors should think about adding assets to a portfolio that will perform in times of market stress.
What is the root of the dispute?
Global trade tensions began in 2018 when the US government imposed tariffs on certain imports, including solar panels and metals-ending a multi-decade process of US trade liberalisation. Since then, tariffs as a percentage of all imports have remained relatively low. But, if the US goes ahead with proposed further charges on Chinese imports and new taxes on auto sector imports, the average US tariff rate will return to levels not seen since the 1940s (Exhibit 1).
Exhibit 1 - US effective import tariff rate
% effective tariff rate (tariffs collected as % of all imported goods)
Today’s top questions
How can we track the health of the US economy?
How is ESG affecting the investment landscape?
UPDATE: Portfolio considerations for investors concerned about a downturn
How low can they go? What do negative rates mean for savers?
UPDATE: “Do or die” - is Brexit set to conclude with no deal on 31 October?
How could trade tensions affect global markets?
Why invest in alternative assets?
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields is not a reliable indicator of current and future results.
J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority, Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.