Escalating trade tensions, a strong U.S. dollar and global portfolio rebalancing threaten stable credit conditions.
The growing list of products targeted in tit-for-tat retaliatory tariffs -- some produced by multinationals through integrated supply chains -- will expand the share of global GDP exposed to trade and investment disruptions.
Escalating tariff measures now hitting $250 billion of goods American buy from China and $110 billion of Chinese imports from the U.S. suggests options may be fading for forging a compromise between the world’s two largest economies. As the threat to producers’ supply chains undermines business sentiment and tariffs raise consumer prices, trade tensions could become a larger drag on growth than monetary policy normalization which continues in the U.S. and elsewhere.
The moderate upward adjustment in central bank policy rates haven’t been a threat to growth for developed economies. Expectations for continued rate hikes in the U.S. and a strong US dollar, however, are becoming a source of volatility and tighter financing conditions with international investors reducing their purchases of emerging market debt and equity instruments.
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