US markets have been under bullish momentum from last year but have been exhibiting volatility from February 2018 on fears of import tariffs. Moreover, even though earnings have been strong, investors are concerned over a rising inflation, and less monetary-policy accommodation.
US has imposed import tariffs on steel, aluminum, and on several Chinese goods under Trump leadership while also pursuing further levies on automobiles from Europe and the rest of the world.
With this, US is facing trade disputes on:
- Renegotiation attempt on North American Free Trade Agreement with Canada and Mexico
- Tariffs with China
- Pressure from EU on recently imposed steel and aluminum tariffs and over a potential of new duties on car imports.
However, rising US trade deficit remains a concern while Trump also accused EU and China, on manipulating their currencies which would cause an economic disadvantage to US. Then rising US dollar would lead to more US trade deficit. Improved status of employment along with rise in oil and commodity prices, and fiscal-stimulus policies are all factors that can influence Fed to raise interest rates faster than expected. To add oil to the fire, Trump’s accusations on currency triggered a possible currency war but again a joint statement assured the exchange-rate commitments.
US president, Mr. Trump’s major agenda is to reduce the America’s trade deficit but leaders across the world are not happy with his negotiation style. US imposition of tariffs is a complicated process and would lead to a rising price. If the trade negotiations are not handled well, other countries would retaliate against the US again leading to higher prices.
Moreover, the recent talks by global leaders at G20, did not make any progress, with leaders failing to reach to a major conclusion, further dampening the investor sentiment. G-20 meeting provided US an opportunity to make talks with Canada and Mexico but no major conclusion could be arrived.
On the other side, economic growth has been slow in the emerging markets and in the EU even though US and China markets’ performance is decent. Rising resistance from other countries, Fed efforts to control inflation, and decreasing benefit from fiscal stimulus might again lead to a US downturn by 2020.
Overall, the global economic environment is under tremendous pressure. Further, growth in regions including United Kingdom and Japan against growth in regions like US and China, is moving at a different pace altogether. The scenario is further aggravated by policies adopted by the US. It will be key to watch whether the statements by some market experts on growth diminishing factors overweighing the growth stimulators would take any shape through to 2020. The key impacts might be seen to be merging from monetary policies, foreign direct investments and deficits. Some believe that the oil price scenario itself would be big enough to cause the recession like environment. Thus, the key thing tethers on whether the global recovery which was seen in a positive stride up till now, will start witnessing the challenges from Trump’s initiatives and policy changes.
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