Chart of The Week – Rising trade tensions: closer to a Donald Dark-style protectionist world?

Before Donald Trump’s election victory in 2016, we set out two economic scenarios for the global economy: Trump Lite and Donald Dark. With fiscal stimulus implemented, business confidence close to record highs, GDP growth strong and some radical proposals canned, we are in a Trump Lite world. But with Sino-US trade tensions moving beyond the threat phase and continuing to escalate, we have taken a step towards our Donald Dark scenario. We have previously likened the trade negotiations to a game of chicken, which we expected the US to win; our China Exposure Index (CEI) suggests that, until recently, investors held a similar view. But since the US first imposed tariffs on imports from China the CEI has tumbled, and is now below 100, lower than it was on the date Donald Trump was elected. For our Donald Dark scenario to become a reality, other countries would need to adopt restrictive trade measures themselves – this appears unlikely for now. We still expect strong US GDP growth in the short run, but we will be revising our medium-term view in the coming weeks in light of ongoing trade developments.

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