While global credit conditions remain broadly favorable, an escalating trade battle between the U.S. and its trading partners, notably China, in the form of billions of dollars in retaliatory tariffs are dragging down global investor confidence, threatening spending, and economic growth.
It’s still unclear whether all involved parties will negotiate new trade terms or retaliate into an all-out trade war.
Whatever the case, the actions thus far have infused broad uncertainty about the outlook for international trade and whether it will continue to be a lever that drives growth for the global economy.
North America: Tit-for-tat retaliatory tariffs that erode consumer and business sentiment could slow growth, while rising corporate debt is pushing a mature credit cycle nearer to a turning point.
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Latin America: Exchange rate volatility is raising the cost of U.S. dollar denominated borrowing and a liquidity squeeze could tighten financing conditions.
Europe (UK): A disruptive Brexit seems more likely. With no obvious resolution -- especially for the auto sector -- trade tensions with the U.S. could become a greater threat.
Asia-Pacific: As China runs out of room to impose retaliatory tariffs on its imports of U.S. goods, the U.S. - China trade battle could spread economic pain by spilling over into services trade.