‘Trump’s trade war a disaster for the world’
Trade tensions have rattled emerging markets in recent months. WILLIAM POOLE, senior advisor, Merk Investments, says the trade war will hurt most countries, including the US. In an interview to Samie Modak during the CFA Society India’s 3rd India Wealth M
Do you think good performance of the US economy and markets has dimmed the appeal for emerging markets?
Good performance of the US is always favourable to other countries. The Trump trade war is not good performance— it is a disaster for the US and the rest of the world.
How will the global trade war impact economic growth?
The trade war will damage the US, most of all. An efficient supply chain is essential for global competitiveness. The trade war is pushing up prices in the US and disrupting production. It has created what macroeconomists call a “negative supply shock”.
How much more could markets fall from current levels if trade tensions persist?
I learnt long ago not to forecast the stock markets. I very much doubt the trade war will be a shock of the order of the US housing bust. However, we should not rule out rude surprises.
For example, in January 2008, few anticipated the Lehman shock.
Within Asia, where do you see good opportunities? How does India compare to its peers?
Everyone knows India has underperformed China. It is a great country and has an advantage over China – democracy. India needs to sweep away impediments to growth. The country has the potential to exceed China's growth, and do so more responsibly in terms of environmental damage than China has done.
Given how the dollar is strengthening, will capital flows and investments into India be hit as US-based investors will now focus more on their home market?
The evidence strongly supports the view that the best forecast of the exchange rate a month from now or a year from now, is at its current level. If a reliable forecast up or down was available, the rate would already have moved.
US investment at home or abroad depends on the expected profitability of investment. Every country has options for improving its investment climate. What is necessary, though, is a long-run sustainable approach. Permanent reform is what is needed.
Every country needs to seek a consistent, reliable business climate under the rule of law. In many respects, the US is not a good model. It has allowed its investment climate to deteriorate over the years. In many industries, the regulatory environment is problematic. Investors need to focus on what the government is doing and participate, to the extent possible, in making the government more honest and reliable. Let me emphasise that the US has its own problems and is not a model for the rest of the world.