Economic and Strategy Viewpoint - May 2018

Trade wars, and how they might affect the US, emerging markets and Japan, are the focus of this month's viewpoint.

23/04/2018
Japan-Shibuya-2016
Read full reportEconomic and Strategy Viewpoint - May 2018
20 pages569 KB

Authors

Keith Wade
Chief Economist & Strategist
Craig Botham
Senior Emerging Markets Economist
Piya Sachdeva
Economist

Trade wars: An easy win for the US?

  • The US has raised tariffs on Chinese imports and China has responded in kind. However, the mood has improved lately, raising hopes of a deal between the two countries which we believe is President Trump's aim ahead of the mid-term elections in November.
  • China is more limited in its scope to raise tariffs, but that does not rule out a host of measures it could take to make life difficult for US companies. Furthermore, China might be able to stick out the pain that a trade war would bring for longer than the US. It has more potential for fiscal support and, of course, President Xi's communist party will not be facing elections in the near future.

Trade wars and emerging markets

  • Trade wars will undoubtedly have EM casualties, but there could be scope for some limited gains too. For now, at least, the pain is likely to be concentrated in Asia, but that will not hold if the conflict engulfs the rest of the globe.

Japan: How vulnerable is Japan in trade wars?

  • As long as US-China trade tensions remain contained, the impact on Japan is limited.
  • The impact of US aluminium and steel tariffs on Japanese growth is minimal. Japan is the most exposed developed market economy to US-China trade wars due to its prominence in the Chinese supply chain. But as a proportion of Japanese GDP, again, the vulnerability is low.
  • A surge in the yen as a safe haven asset would be a headwind to Japanese exports, inflation and earnings. Meanwhile, the cyclicality of the equity market would likely lead to underperformance in Japanese equities.
Read full reportEconomic and Strategy Viewpoint - May 2018
20 pages569 KB

Schroder Investment Management Limited - Dubai Branch is a DIFC Foreign Recognised Company. The DIFC Branch is duly authorized and regulated by the Dubai Financial Services Authority. The content of this material is not intended nor is it to be considered as financial advice and is only for the purpose of knowledge. This material has not been approved by any regulator/authority in the Middle East region. Accordingly, no regulator/authority has approved this information material or any other associated documents nor taken any steps to verify the information set out in this material and has no responsibility for it.

 

We have made every effort to ensure the accuracy of the information in this document. However, we cannot be held responsible for any errors, mistakes, or omissions, or for any actions taken based on this information. If you do not fully comprehend the content of this document, we recommend seeking advice from an authorized financial advisor.

This research and the information contained herein may not be reproduced, distributed, or transmitted in DIFC or in any other jurisdiction to any other person or incorporated in any way into another document or other material without our prior written consent.

Authors

Keith Wade
Chief Economist & Strategist
Craig Botham
Senior Emerging Markets Economist
Piya Sachdeva
Economist

Topics

Follow us

Issued by Schroder Investment Management Limited. Authorised and regulated by the Financial Conduct Authority.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

© Copyright 2018  Schroder Investment Management (Europe) S.A. All rights in all countries.

Schroder Investment Management Limited – (Dubai Branch) is regulated by the Dubai Financial Services Authority (“DFSA”)