29 May 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
President Trump made a bold claim in March 2018 that “trade wars are good and are easy to win”. However since then, the trade war has actually proven bad for economic growth and difficult to resolve. Casualties of this trade war have spread well beyond the borders of the two main contenders in the US and China, suggesting that this trade war is a major global concern rather than just a mere political tussle between two rival superpowers.
The Purchasing Managers’ Indexes (PMI) are key business surveys and provide a good leading indicator for future economic activity. Notably the manufacturing PMIs for both Europe (blue line) and Japan (red line) have fallen sharply over the past year. Manufacturers in both Europe and Japan appear alarmed that the trade war between the US and China are penalising export opportunities for their products. A particular concern is that President Trump has threatened tariffs on car imports into the US. This is a major risk to both German and Japanese car manufacturers who rely on the US as a key market for their vehicles.
So both Europe and Japan are collateral damage in this trade war. Unless this trade war is rapidly resolved, the global growth story for car manufacturing is at risk of running out of fuel.
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