Features

Where to shelter from a trade war

If we end up in a full-blown trade war, investors should head for ‘closed’, or self-sufficient, economies.

889_MW_P06_markets_bottom
Tariffs will put Taiwan on the skids

For all the talk of a trade war, it's hardly a done deal just yet, notes Capital Economics. The economic impact of the 25% tariff on $50bn of Chinese imports Trump announced last week is small: they cover 3% of US imports, a similar proportion as the steel and aluminium levies promised a fortnight ago.

The tariffs would also affect just 10% of China's exports, worth 0.25% of Chinese GDP. They may be watered down, as the levies on steel have been. Economies that account for 70% of US steel imports, including the EU, South Korea and Mexico, have got at least temporary exemptions. And China's retaliatory tariffs on US goods worth just $3bn "suggests that its priority is to avoid exacerbating the conflict". Still, assuming we end up in a full-blown trade war, what are investors to do? "The more closed', or self-sufficient the economy, the better," says John Authers in the Financial Times. Those least reliant on trade are the US, Brazil, Japan and China, in that order. The countries that could start a trade war "have the least to lose economically".

Still, economic exposure is not the same as stockmarket exposure; major indices tend to be more international. Half the S&P 500's sales are made outside America, for instance, yet exports comprise just 12% of US GDP. Japan's equity market is full of big exporters.

Keeping both economic and market vulnerability in mind, the most exposed emerging markets (which are generally more trade-dependent than industrialised ones in any case) are Taiwan and Korea, while the eurozone, notably Germany, looks the most vulnerable developed market. Europe's markets and economies are both highly geared to global trade. At the company level, "smaller seems smarter", says Rana Foroohar on FT.com. Localised players are far less likely to become targets of protectionism than sprawling banks or tech companies.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns
Investment strategy

Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns

Merryn talks to Shaniel Ramjee of Pictet about where to find the best returns in global markets right now – the continued growth of technology; why Ch…
20 Oct 2020
Cash rich and bored? Be careful what you do with your money
Investment strategy

Cash rich and bored? Be careful what you do with your money

As the pandemic has left many people with more time on their hands but little opportunity to spend, they have been speculating in the markets. But don…
19 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020