Albert Edwards: investors are missing the real danger
Investors are worrying about the US and China, and US interest rates, but the real danger is higher US tariffs on German cars, says Society Generale's Albert Edwards.
Investors are spending most of their time fretting about two "big picture" issues right now, says Albert Edwards, Societe Generale's famously bearish global strategist. Number one is the risk that trade tensions between the US and China escalate into a full-blown trade war. Number two is the risk that rising US wage inflation encourages the Federal Reserve to raise US interest rates more rapidly. However, investors may well be missing the real danger: the risk of higher trade tariffs being imposed on European (German) cars.
German carmakers control "more than 90% of the US market" for luxury cars. And that's just the tip of the iceberg. The eurozone exports a lot more to the US than it imports, which is "in very large part due to the undervalued euro". The weak euro is in turn a direct side effect of European Central Bank (ECB) monetary policy. Unlike the Fed, the ECB under Mario Draghi is still delaying the tightening process for as long as it can, which means the euro is only likely to get weaker or remain weak against the US dollar, exacerbating trade tensions.
For now, the US charges 2.5% tariffs on car imports. That compares with the EU's 10% and China's 25% (falling to 15% from July). "It doesn't take a genius" to see what's coming after the completion of the current US probe into whether vehicle imports have damaged the US auto industry higher tariffs on EU imports. The ECB "might have papered over the cracks in the eurozone for now... but it has also raised the likelihood of a full-blown US/EU trade war".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
8 of the best properties for sale near ski slopes
The best properties for sale near ski slopes – from a luxury cabin in Geilo, one of Norway’s premier ski resorts, to a large chalet in Valais, Switzerland
By Natasha Langan Published
-
Cash hoarders take total UK savings to £2 trillion – why aren’t we investing?
Investment-shy Brits are hoarding huge amounts of cash in their savings accounts. We look at the case for saving versus investing.
By Katie Williams Published