Donald Trump signals interest in a China trade truce, but it may already be too late for the global economy
- Nicholas Spiro says the damage has been done: both the US and Chinese economies are slowing and the overall rift in relations will persist even if Trump backs down on tariffs
While the blame for the current growth scare cannot be pinned entirely on Trump’s trade offensive, his brinkmanship has done a grave disservice to the global economy, so much so that America’s own performance has suffered.
The period of “US exceptionalism” in markets has faded significantly. Since the end of October, the MSCI Emerging Market Index, the leading gauge of stocks in developing nations, has risen 9 per cent compared with a 1 per cent gain for the S&P 500.
More importantly, the US economy has begun to feel the strain. Last Friday, a gauge of consumer sentiment dropped to its lowest level since Trump was elected president. Higher tariffs have pushed up input prices, contributing to a squeeze on companies’ margins.
What is more, Trump’s brinkmanship is also largely responsible for the partial shutdown of America’s government.
Trump’s aggressive trade actions have also made investors much more sensitive to China’s domestic economic woes, a development which Trump doubtless views as a sign that his administration is winning the trade war but which has backfired due to the adverse spillover effects on America’s economy and markets.
The news that China’s fourth-quarter gross domestic product growth fell to 6.4 per cent confirmed what the latest batch of monthly surveys and indicators have shown: a continued deceleration in activity stemming mostly from the 2½-year-old deleveraging campaign that is constraining Beijing’s ability to stimulate the economy.
The slowdown, moreover, is widely believed to be much sharper than the statistics suggest, given deep scepticism about the accuracy of official data.
Although this is mostly due to the surge in China’s debt levels over the past decade, the severe deterioration in US-China relations is also a factor.
As I mentioned previously, Trump’s belligerence and his disdain for multilateralism make Beijing less inclined to ride to the rescue of the global economy – at least not before it knows whether a trade deal is assured.
Nicholas Spiro is a partner at Lauressa Advisory