Let the Trade Skirmishes Begin
By Bluford Putnam, Ph.D., Chief Economist, CME Group and Member of the JPMCC’s Research Council
The biggest current threat to global growth is a trade war. There are other risks. The US Federal Reserve is unwinding quantitative easing and raising rates, but making the policy shifts very gradually with careful market guidance. Governments are focused on whether they need to cut taxes, not raise them, so there would be no growth risks from fiscal policy. Consumer confidence is relatively high around the world, from mature industrial countries to young emerging market countries. Equity market valuation may appear high to some, but stock market corrections do not cause recessions unless there is a financial panic – and systematic risks from financial institutions are much lower than when the last crisis occurred in 2008. After considering the other risks, we stand by our analysis that if the current synchronized global economic expansion is derailed, the most likely cause will be a trade war. Yet, we are optimistic. So far, the actions taken earn only the terminology of “Skirmishes,” but if they escalate to “Battles” and then a “Trade War,” we will need to reassess the risks. This article provides a review of the issues and challenges of trade protectionism.