The topic of trade remains front of mind for investors, businesses and consumers. This year, online searches for the words “trade” and “tariffs” have surged to levels not seen at any point over the past 15 years. For investors, however, it is crucial to separate tariffs enacted from those still under discussion, and to consider whether trade tensions have been improving or worsening at the margin.

While the U.S. Department of Commerce has considered large values of goods as potential targets for tariffs, the implementation thus far has been modest. New tariffs have been imposed on lumber, washing machines, solar cells and modules, steel, aluminum and $34 billion of goods from China (with tariffs on an additional $16 billion scheduled for August 23). In total, these sum to annual imports of $88 billion, representing 3% of all U.S. imports and 0.3% of U.S. GDP. At the moment, these numbers are quite small and should not directly alter the trajectory of the overall economy or corporate earnings.

Still under review, however, are tariffs on automobiles and automotive parts and an additional $200 billion of goods from China (with potentially another $200 billion after that), as well as the update to the North America Free Trade Agreement (NAFTA). Together, these would represent a much more significant sum of goods, equivalent to 27% of U.S. imports and 4% of U.S. GDP.

While this is the status quo, investors should ask themselves: have trade tensions been getting better or worse? This is helpful in order to gauge the likelihood of implementation of the tariffs still under review. In addition, it provides some insight into whether the trade noise itself may have a negative impact on the global economy via the sentiment and financial conditions channels.

The trade fight is being fought on many fronts, and over the past month progress has been made on some and stalled on others. Tensions with the European Union have lessened since late July after both sides pledged to work on lowering tariffs on certain goods, reassessing already imposed steel and aluminum tariffs and placing automobile tariffs on hold. In addition, after its Presidential election last month, NAFTA discussions with Mexico have improved, especially on autos, with the end of August targeted for an agreement (Canada has yet to join these most recent discussions). On the other side, discussions with China have not progressed much, with the administration considering increasing tariffs on $200 billion from 10% to 25%.

All in all, trade tensions have reduced at the margin, a positive for sentiment, but it is too early to call a truce. “Trade” and “tariffs” are likely to continue being searched online for a bit longer, and while we continue to consider them a source of downside risk for growth and a source of volatility for markets, we find it too early to change our constructive view of the U.S. economy and risk assets.

The evolution of a fight on many fronts

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*Key Green= Improved, Yellow= Unimproved, Red= Worsened
Source: Department of Commerce, J.P. Morgan Asset Management.
Data are as of August 10, 2018.