A US-China-Europe trade deal is what financial markets need
- Given the recovery in world trade growth this year, if the US, China and Europe can strike a deal to stop the slide towards global protectionism and boost opportunities for freer trade, markets could rocket
There are many potential problems still weighing on global recovery, clouding the outlook for world financial markets in the coming months.
On the bright side, though, there has been a rapid recovery in world trade growth this year, a big morale booster for investors if it can be maintained. If the US, China and Europe can strike a deal to stop the slide towards global protectionism and boost opportunities for freer trade in the future, then markets could rocket.
It could set the seal on much faster world trade growth and clinch much stronger global growth in the process. It’s definitely worth a shot, so what’s stopping the world from trying?
The latest data from the Dutch CPB Bureau for Economic Policy Analysis shows that, for the three months to May, world trade flows were 19.5 per cent higher than the same period a year earlier.
A better gauge of global trade conditions in May shows the annualised three-month rate of growth over the previous quarter expanding at a relatively robust rate of 12.3 per cent. World trade seems to be heading back to its long-term growth potential.
The last thing the world needs is any further cost-push inflation pressures, especially owing to trade frictions and new hikes in import tariffs.
There’s no room for the war of words over “unfair trading practices” and “intellectual property theft” which were levelled at China by US president Donald Trump between 2017 and 2021.
Tit-for-tat trade sanctions and tariff rises which emerged during the trade war should be repealed in the interest of detente. Europe also needs to settle its differences with the US and China, providing easier access to the European single market to bolster global growth.
If progress can be achieved, it must be done under the mantle of better multilateral accord and with greater commitment to reducing global trade imbalances. There have to be bilateral policy adjustments on all sides.
In Europe, Germany needs to save less and consume more, especially on goods from abroad. Germany’s budget and trade surpluses remain a drag on global growth.
Keeping monetary and fiscal policies super-loose for as long as possible is not enough. A major thaw in international trade relations is vital to keep the global recovery ticking over, setting a positive precedent for the world equity rally in the process. The global boom is stocks is far from over.
David Brown is the chief executive of New View Economics