Global Trade Slows Further

Economic Blog
August 29, 2019

World trade volumes contracted in June and the second quarter as the United States-China trade conflict impacted the amount of goods crossing borders. On a quarter-over-quarter basis, trade has contracted for three consecutive quarters.

This is not too surprising given the current trade environment. The slowdown in global trade has been significant since President Trump first slapped tariffs on washing machines in February 2018, and followed up with tariffs on Chinese imports in March 2018. As shown in the LPL Chart of the Day, Global Trade Has Slowed Significantly, world trade volumes have tumbled from 5-6% annual growth to a slight decline in just 16 months, even though some trade activity is being shifted to other countries in Southeast Asia.


Slower economic growth in Europe and Japan has been a drag on trade, and Japan and South Korea are having a trade dispute, but there is no doubt the impact of the United States-China conflict has been substantial.

“The tailwinds of fiscal stimulus have been no match for the headwind of trade uncertainty,” said LPL Financial Chief Investment Strategist John Lynch. “Using the C + I + G + X formula that we remember from Economics 101, the C (consumer) is doing pretty much all of the work, with some help from the G (government), while neither the I (capital investment) or the X (trade) are carrying their weight.”

We still believe that the economic pain being inflicted on the United States and China during this conflict will lead to an agreement. President Trump will focus on the economy in his 2020 re-election campaign, as the trade conflict has clearly weighed on domestic growth. Deferring tariffs until December and carving out consumer goods illustrate that the Trump administration recognizes the economic damage being done. Still, there is an increasing risk after the recent escalation that the conflict drags on through 2020.

Until we get clarity on trade, we expect monetary and fiscal stimulus and a healthy U.S. consumer to help keep the economic expansion going and provide support for U.S. stocks.


Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

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