In this piece, we try to dive into US trade policy from different angles, what it means for the economy and what to expect from here.
We do not expect the recent developments to evolve into a full-blown trade war but measures to be taken in fairly narrow areas (small part of global trade). Hence, we expect the impact on US growth and inflation to be fairly limited.
There is a risk that we are too optimistic and that there will be a bigger trade war, which would be negative for the global economy and global risk sentiment and would lift inflation by more than we expect.
Trump's formal decision is likely to be postponed until next week but the White House is signalling he is not backing down. Gary Cohns's resignation supports this view. Trading partners unlikely to retaliate until formal decision has been made. Next step for Trump is likely measures targeted at China.
In our risk scenario, we expect a weaker USD due to slower US growth and US isolation to dominate traditional USD support from lower global risk sentiment (see page 5).
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