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Tuesday, June 26, 2018

The Trade War Will Get Worse Before It Gets Better

The world economy is in relatively good shape, currently growing at almost 4 percent, a level not seen since before the 2008 financial crisis. But as policymakers have been warning, there are dark clouds looming on the horizon. 


 I attended the IMF (International Monetary Fund) and OECD
conferences this year, and every policymaker I spoke to told me their biggest concern was a trade war and the undermining of multilateralism — even when the OECD conference coincided with the largest repricing of Italian bonds since the sovereign crisis...

So far, economists have pointed out that the absolute level of tariffs as a percentage of global trade is quite small, with the impact ranging from 0.1 to 0.3 percent of gross domestic product (GDP) at most, and around a 0.1 to 0.2 percent impact on domestic inflation... 

Political brinkmanship is making financial markets nervous and this is precisely the gamble that Trump is making...

The question then becomes: how much repricing do we need to see in financial markets in order to put an end to the tit-for-tat retaliation? 

Things may have to get a lot worse before it becomes politically palatable to make concessions. 

Read the full story here: https://lnkd.in/ehSRw4M 

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