The firm said Mr Trump’s attempts to change trade relationships “could be seen as a foreign threat that other nations need to address aggressively" by imposing their own trade restrictions to the US.
“Rather than simply agreeing to roll back trade agreements, countries that see their economic interests in jeopardy could choose to go on the offensive, likely targeting the most competitive parts of the US economy,” the company said.
State Street Global Advisors warned that this would negatively affect shareholders, employees and customers, and also put pressure on uncompetitive areas of the economy.
“The uncompetitive parts of the global economy would be propped up at the expense of competitive areas, with aggregate social welfare paying the price,” the firm said.
China is the most likely nation to respond to protectionist changes in US trade policy, State Street Global Advisors said, as it has “little to lose and much to gain by retaliating”, with the impacts of such action likely to be felt globally.
“Retaliation might take the form of further restrictions on US trade with China. At the same time, aggressive, pro-growth policies could inflate asset bubbles or supercharge inflation, while overly restrictive capital controls could rile the markets,” the firm said.
“Any of these scenarios would raise the likelihood of making a policy mistake that could have serious consequences globally.”
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