Confidence Teeters as Trade Deals Stall
Author: Greg Valliere
September 24, 2019
ALL TALK, NO ACTION: We’re beginning to doubt all the boasts about imminent trade agreements. The devil is in the details, and despite happy talk between President Trump and some foreign leaders, there are no final deals with Japan, the EU, the U.K., Canada, Mexico or — of course — China.
THE LATEST SNAG is with Japan, which reportedly is reluctant to sign a deal without assurances that the U.S. will not impose tariffs on Japanese cars and auto parts. Reuters reports this morning that officials from both countries had hoped to announce a final deal at this week’s United Nations meeting, but it’s possible that they will only announce an agreement in principle.
THIS SEEMS TO BE A PATTERN — an agreement in principle but no final deal on the mind-numbing provisions that comprise final trade treaties. The U.S-Mexico-Canada agreement, for example, has been agreed to in principle, but the U.S. Congress is determined to re-write major provisions before a likely ratification later this year.
THE GREATEST SOURCE OF TRADE UNCERTAINTY, of course, is between the U.S. and China. Trump charged last Friday that China is a “threat to the world” and asserted that there might not be a deal before the Nov. 3, 2020 U.S. elections. High-level talks will resume in two weeks, but a sweeping pact is not imminent; a piecemeal agreement is possible, but Trump doesn’t favor that option.
WILL CHINA WAIT? A question we hear frequently is whether the Chinese may wait until after the U.S. election, hoping for a much better deal if Trump loses. If Joe Biden wins the presidency, a quick agreement would be likely. But Elizabeth Warren is a China trade hawk, as are many Democrats. If Trump wins re-election, his terms would stiffen.
THE BOTTOM LINE is that the enormous trade uncertainty that plagues much of the world is likely to persist. China and the EU have more at stake, but the uncertainty has contributed to a severe recession in the U.S. farm belt and has raised prices of component parts for U.S. manufacturers, who cannot plan for future hiring and expansion until trade issues are resolved.
A GLOBAL RECESSION MAY BE AVOIDED if countries adopt aggressively stimulative monetary and fiscal policies, which seems to be the trend, but the inability to finalize trade deals is a major drag on confidence. There’s a pervasive lack of confidence globally and a huge factor is the uncertainty that will persist until trade deals evolve from vague promises to specific treaties.
WE INCREASINGLY BELIEVE that the key ingredient for global economies is confidence — faith by businesses, markets and consumers that economic policies will stimulate growth. But the risks now are downside risks, as political instability persists in the U.K., Western Europe, China and in the U.S., where impeachment proceedings may intensify the uncertainty.
THE U.S. WILL PROBABLY PLOD ALONG at a GDP pace a little below 2% — better than Europe but the U.S. is now growing below potential because of self-inflicted trade wars that still aren’t resolved.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.