Is it 1930 all Over Again? - Global Trade

Economics - Global Trade

 

An investigation into the potential effects of import tariffs on global trade

 

Summary

The US administration has introduced import tariffs on washing machines and solar equipment in order to protect domestic manufacturing jobs. This has stoked fears of a potential trade war.

While a trade war remains unlikely at this point, we investigate the potential effects of an escalation on the US economy and the US stock market. We find that the US economy is less exposed to global trade than European economies, which makes it less vulnerable to the negative effects of a trade war. Surprising as it may sound, China is also one of the countries with low exposure to global trade, thanks to a large domestic market with high growth rates.

The weak spot in an escalating trade war is the stock market. Global corporations that dominate the US stock market are heavily exposed to foreign trade and global supply chains. The IT sector in particular is vulnerable to disruptions of global trade. An escalating trade war has the potential to end the current stock market rally and lead to significant declines in stock prices.

 

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