DuckerFrontier recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition highlighting the latest developments in the US-China trade war.
The past weeks’ events mark a clear escalation of the trade war. Additional tariffs will hit low margin consumer goods that will be felt directly by consumers. This will increase the risk of a 2020 US recession and generally hurt Trump’s reelection chances. Though Trump’s threat to impose additional tariffs is credible, we believe that his strategy has backfired in this case. Trump’s goal was to get China to restart agricultural purchases. Instead, China allowed the CNY to depreciate past 7.0, clearly signaling to the US that it would use the currency as a retaliatory tool if the US continued to impose tariffs.
The risk to the global outlook for 2020 was already high, but if neither party seeks to deescalate tensions, the likelihood of a significant global slowdown will increase substantially. Investment growth has already been weak, with slowing global PMIs, and additional uncertainty could lead to an investment-led contraction. Firms need to approach their 2020 plans cautiously, prepare for a weaker CNY, and continue to plan for a gradual decoupling of US-China supply chains and bilateral flows of goods, services, technology, and individuals in sensitive roles.
Ryan Connelly, Practice Leader for Global Economics and Scenarios
FrontierView clients: See our most recent US-China LiveView dashboard to stay up to date