This week, China announced it would slap its own tariffs on 128 US imports, following an imposition by the US of a 25 per cent traffic on steel and aluminium.
Speaking to InvestorDaily, GFSM investment consultant Stephen Miller said while these measures by the US president alone will not have a major impact on the global economy, any further retaliation might.
“The fear is that they incite retaliatory measures from the major trading blocs, such as China and the [European Union], leading to a race to the bottom in terms of protectionist measures with an attendant slowing of global trade and economic growth,” Mr Miller said.
“An increase in global protectionist tendencies is not only inimical for global growth but implies higher prices and less economic flexibility leading to, for a time at least, more inflation pressure. This may well imply higher interest rates for a given economic growth rate.
“Such a cocktail is not one that is typically conducive to equity returns.”
There is also the risk that both the US and China could lose control of the situation, said Mark Wills, State Street Global Advisors’ head of investment solutions group for Asia Pacific. This threat remains even though the US has referred the matter to the World Trade Organisation, which introduces an independent third party.
“The US has a few strong options that they can use to affect China quickly. For example, tariffs have limited impact on them,” Mr Wills said.
“However, if the US were to become extremely aggressive and pursue a strategy to enforce intellectual property rights, this could quickly become a messy and hard-to-manage situation.
“Neither Xi or Trump want[s] to appear weak at home to their populace and managing this issue could override good policy for the appearance of being tough.”
