Investors in global stocks and Irish shares, in particular, will learn this week whether the growing fears over escalating trade wars will send markets reeling again. Before last week the battle between President Donald Trump's White House with China over trade tariffs had shown signs of abating and stock markets appeared to be coming to terms with the effects on world economic growth.
The shares of Apple -- which has potentially a lot to lose from any retaliatory action by China because most of its iPhone parts are manufactured there -- are still up from year-end levels. The IMF has said that consumers in the US and China were "unequivocally the losers from trade tensions".
But President Trump's tweet last week aimed against Mexico blindsided investors again -- opening up uncertainty across the world about supply chains of everything from German car parts to technology components because so many products destined for the US market are made in Mexico. The Irish stock market and the wider Irish economy has potentially much to lose too.
The big fear is that President Trump after China and Mexico will take on the EU -- opening up the possibility of dragging the US multinationals, which make so many pharmaceutical products in Ireland for the US market, into the trade wars for the first time.
Ireland is highly exposed to any rapid turndown in world trade -- just as the economy was benignly exposed to the rapid acceleration of world growth since the 2008 financial slump which eventually fuelled the strong recovery here. Many constituent companies on the Iseq, including the banks and Ryanair, have also had a rough time since the Brexit referendum in the summer of 2016, amid the slump of sterling and rising fuel costs.
Reflecting fears over a no-deal Brexit and the trade wars, the Iseq has fallen 10% since the start of the year, and is 13% below its level of a year ago. Investors will hope that the threat of a Mexico trade war will not flare.
Mexico’s Economy Minister Graciela Marquez said on Sunday she would meet with US Commerce Secretary Wilbur Ross in Washington, two days before the neighbouring countries are due to discuss possible tariffs on Mexican goods. The punitive tariffs of 5% on Mexican goods would gradually increase to 25%, if Mexico did not stem migration north.
Mexico’s deputy minister of foreign trade Luz Maria de la Mora later specified in a tweet that both would analyse the commercial relationship between the two countries, adding that Mexico had become the US’s largest trade partner in early 2019. Mexican President Andres Manuel Lopez Obrador had been optimistic that they could find a way to avoid the tariffs.
“Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook,” Chetan Ahya, the New York-based head of economics at Morgan Stanley, said.
“If trade tensions continue to escalate, the global cycle will be at risk. We could end up in a recession in three quarters,” the bank said.
Meanwhile, global airlines slashed a widely watched industry profit forecast by 21% over the weekend as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown. The International Air Transport Association, or IATA, which represents about 290 carriers or more than 80% of global air traffic, said the industry is expected to post a $28bn (€25bn) in 2019, down from a December forecast of $35.5bn.
“Airlines will still turn a profit this year, but there is no easy money to be made,” director general Alexandre de Juniac said at the group’s annual meeting in Seoul.
Additional reporting Reuters and Bloomberg