Will trade tensions ease in 2020? - J.P. Morgan Asset Management

Will trade tensions ease in 2020?

Contributor Alex Dryden

2019 has delivered generous returns for equity investors with the S&P 500 returning 23% year-to-date. Dovish central banks, stabilizing global growth and a better than expected Q3 earnings season have all helped lift equity markets to record highs; however, the consistent drip feed of positive news flow regarding trade talks has also been a major factor.

The mood music around U.S.-China trade talks remains buoyant and a potential deal might be within reach. However, investors should not make the mistake of viewing a potential U.S.-China deal as the finish line for global trade tensions. As we highlight in this week’s chart, the U.S. runs a $181 billion trade deficit in goods with the European Union (EU) and therefore, any U.S.-China trade deal would likely see the focus of trade renegotiations shift from China to Europe.

Within the U.S.-EU trade balance, U.S. trade representatives have cited uneven terms-of-trade in areas such as the auto industry. European produced autos sold in the U.S. are subject to a 2.5% tariff; meanwhile, U.S. producers would be subject to a 10% tariff if they exported to the EU. These potential flashpoints mean that global trade tensions may continue into 2020, weighing on global growth and acting as a headwind for further equity market gains.

U.S. trade in goods balance

USD billions, last twelve month sum of net goods exports

Source: US Census Bureau, J.P. Morgan Asset Management. Trade in goods balance is the sum of the last twelve months trade balance (exports less imports) as of September 2019. Data are as of November 12, 2019.

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