The Daily Update - Protectionism & Growth

The summit between President Trump and Xi has been pushed back while trade negotiations continue but Trump said the negotiations are ‘going incredibly well’ while China’s state news agency pointed to ‘substantive progress’: the market is still expecting a deal to resolve the impasse. However, the US hard-line approach to trade and tariffs looks likely to continue with the US likely turning their attention to other trading partners.

A ‘section 232’ report from the US Department of Commerce on February 17 opened the door for President Donald Trump to impose 25 percent tariffs on auto imports on national security grounds: the President has 90 days to make a decision on this. Moody’s estimate that ‘US tariffs of up to 25% and corresponding retaliatory actions from the US's major auto-trading partners would disrupt about $500 billion of trade flows’ which they estimate accounts for 2.8% of 2017 world imports and 0.6% of 2017 world GDP. Any impact is likely to be most brutal for Japanese, Korean, Mexican and German manufacturers.

In its latest economic outlook the OECD also warned on potentially negative impacts from auto tariffs on the EU: ‘Motor vehicle exports represent around 10% of total EU merchandise exports to the United States and there are significant supply-chain linkages within Europe that would spread the impact widely across countries and firms.’ Moreover, the impact would be particularly keenly felt given how weak growth currently is: the latest OECD forecasts are for Euro area growth of just 1% in 2019 rising to 1.2% in 2020 and for Germany to grow at 0.7% in 2019 reaccelerating to 1.1% in 2020. Moody’s estimate that auto tariffs of 20-25% could reduce Germany’s annual growth rate by 0.2% per annum in 2019 and 2020 but note the effect could end up being larger if an escalation in trade tensions really hurts investment.

In July 2018, following the US imposition of steel and aluminium tariffs and a threat of auto tariffs, President Trump and EU President Jean Claude Juncker announced an initiative to work towards improved trading relations in a number of areas. However, progress seems to be slow and the EU wanting to exclude agriculture in the trade talks is an area of contention for the US. Trump continues to apply pressure recently commenting: ‘We’re trying to make a deal. They’re very tough to make a deal with - the EU’ and that ‘If we don’t make the deal, we’ll do the tariffs.’ For us, protectionism still remains a significant risk to the global growth outlook.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.