Unintended consequences of the Sino-US trade conflict (II) – Surprises for America and EM
US President Donald Trump believes that “trade wars are easy to win”. Many observers and investors agree with him as the US economy is recovering strongly while the Chinese economy is slowing down with the emerging markets (EM) being caught in the crossfire1. How about thinking out of the box about the opposite: The US will be hurt while EM will benefit, with China playing a role in all this?
Classical trade theory of comparative advantage argues that limiting imports reduces both consumer welfare and productivity growth in the long-run. So no one wins in a trade war. Macroeconomic conditions determine who gains and who loses in the short-run, but such analysis does not seem to have gained much attention in the political debates on President Trump’s tariff tactics against China…
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China’s opening-up of its bond market – the third largest in the world – to foreign investors marks a turning point. It should allow investors to access a broad range of new instruments, possibly index products and bond ETFs, and boost their currently modest presence in this market.
The economic relationship between China and the US will be central to the global economy for years to come.
In a world striving for greater sustainability, investment in coal – be it mining or power generation – should be much more selective, hence our new coal investment policy. Also in this issue: how to navigate markets as they swing between the impact of news on the fundamentals and adjustments in central bank liquidity; what to make of the trends in US inflation; and our assessment of the relations and economies of China and the US.