The latest fuss over protectionism is especially worrying for emerging markets. Developing countries are a geared play on global growth, as exports usually account for a larger share of GDP than in the developed world. So when Trump threatened more tariffs this week, an index tracking major emerging-market currencies slipped to its lowest level since he won the White House.
Early this week the Turkish lira lost another 1% against the greenback. The Australian dollar is "not an emerging-market currency, unless you enjoy winding up Australians", says Kate Martin in the Financial Times. But it is deemed a barometer of Chinese and global growth. It fell by 0.7%. It hardly helps matters, says Capital Economics, that emerging market export growth has cooled anyway recently. After surging to a six-year high in 2017, the US dollar value of emerging market exports grew by just 11.4% in March, the weakest pace for 16 months. If there is a trade war, growth will be weaker in the next few years.
On the plus side, however, emerging markets have got their act together. Since the Asian crisis of the late 1990s, emerging market crises "have tended to be isolated rather than systemic events". Crucially, most developing countries have reduced their vulnerability to external shocks: the countries most dependent on external financing, Argentina and Turkey, are already in the markets' sights. Most others have kept a lid on foreign currency debt, and got better at targeting inflation and reducing public borrowing. Risky assets all tend to fall at once when there is a panic, but this implies a chance to buy cheaply assets from countries with big domestic markets and promising prospects. India, Brazil and the Philippines are among our favourites.
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