Are we at peak global, and do markets care?
Trade wars are in the headlines again, as Trump and Xi exchange threats. For investors the big question has to be whether these will lead to a reverse of globalisation. One commentator http://petertasker.asia points out that there are parallels but also big differences with the US-Japan friction of the 1980s. China, unlike Japan then, is an important part of the US supply chain and hiking tariffs will simply hurt US producers. Secondly, the US has no big stick to use against China, because it doesn’t provide any form of defence shield as it did for Japan. Thirdly, China has broader military ambitions which may create additional causes of friction.
The base case has to be that Trump’s comma-head advisors head him off actually implementing his threats. They’ve done a good job over the past 15 months but that’s no guarantee it will happen again. I say that is the base case because it’s so clearly in everyone’s interest. Even if this goes in a different direction, it is likely to take time to play out and increased military spending will certainly have a positive impact on some parts of the stockmarket, in Japan, the US or China. We may indeed have reached ‘Peak Global’, but at least in the short-term trade friction is more likely to be used as the post hoc excuse for a market setback than actually be the primary cause.