In our previous note on trade wars, we argued that trade disputes have a similar pattern to proxy wars we see in contemporary conflicts today: the concepts of victory and getting a “good deal” are very blurred and there is neither a clear beginning nor a clear end to such disputes. We therefore believe that the current tensions between the US, the EU, China, and Russia will not grant visible economic advantages to any of the parties involved, including the US. They will go in phases: occasionally escalating to almost “unreasonable” levels and subsequently peter out for a few quarters, before resurfacing again.
The new USMCA deal as a positive signal from the US of easing tensions and providing political reassurance at least to its closest allies on the western front. The deal itself delivers minor advantages to the US compared with NAFTA, but did not fully challenge the critical demands of Canada for example. The deal shows that President Trump is happy to end a negotiation relatively quickly as long as the US can lock in some gain. This is similar in spirit to the agreement reached with EU Commission President Junker in July.
We expect the US demands on its trading partners to remain forceful in coming years, we recommend companies prepare themselves for greater tariff barriers, greater currency volatility and potentially lower capital mobility in the coming years.