US: Trade war risks growth - Westpac

According to analysts at Westpac, in this environment, ongoing US growth is not assured, and economic policy needs to be managed carefully.

Key Quotes

“Before Donald Trump enacted his protectionist plan, the US economy was humming along well and the share market, as he pointed out on many occasions, was booming. The IMF has predicted US economic growth at a healthy 2.7 per cent this year. US consumers have deleveraged and jobs are being created, ironically in many of the industries which are now vulnerable to a trade war.”

“The Dow Jones Industrial Average rose 33 per cent between the beginning of 2017 and 26 January this year. Since then, and while the US and China are trading blows, it has come off 9 per cent.”

“The expectation, even without a trade war, has been for US interest rates to rise this year as the US Federal Reserve moves out of Quantitative Easing and into Quantitative Tightening.”

“US Bond yields are likely to rise, with some forecasting that Ten Year Bonds could nudge three per cent this year.”

“In this environment, ongoing growth is not assured, and economic policy needs to be managed carefully.”

“It is arguably best to regard further reports of US authorities continuing to work on investment restrictions for Chinese firms seeking to invest in the US as a further bargaining chip for negotiations,” says Westpac’s Elliot Clarke.

“National security is certainly an issue for the US in some sub-sectors, but the opportunity to engage with China and develop opportunities for US firms to invest in China is not one to be missed.   “A compromise will eventually be found between the US and China, and that Europe will also be kept on side. However, this will likely take a lot of time. In the meantime, financial markets are likely to face continued uncertainty and hence volatility.”

“A compromise will eventually be found between the US and China, and that Europe will also be kept on side. However, this will likely take a lot of time. In the meantime, financial markets are likely to face continued uncertainty and hence volatility.”