Analysts Brace For "Serious Disruption" As Trade Growth Tumbles Ahead Of Tariffs

While the US prepares to unleash its latest salvo in the trade war against China at midnight tonight, business surveys suggest that global trade is already collapsing

JPMorgan's Global Purchasing Managers' Index (PMI) data suggest that trade growth has already slowed dramatically this year, as tensions over tariffs have escalated.

“There is a huge correlation between the performance of Asian exports and Asian earnings. You can extend that analysis from global trade to global earnings,” said Tai Hui, chief markets strategist for Asia at J.P. Morgan Asset Management. Companies in sectors like consumer electronics are already suffering, he added.

As WSJ notes, the data signals that the synchronized world-wide growth that sustained global markets and company earnings for much of last year is already starting to run on empty. And that slowdown is likely to have a greater impact on trade than the developing conflict among the U.S., China and other major economies, analysts and investors say.

The global trade moderation helps explain the recent sell-off in emerging-market bonds and equities better than any fears of rising protectionism, BCA Research, an independent Canadian research firm, argued in a report last week. Any fall in trade is likely to first hit economies integral to globalized manufacturing processes, such as those of several emerging countries in Asia.

“When global trade expands, weak parts of the chain do well. Conversely, when global trade growth dwindles, these same weak links are the first to break,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research.

But while the incessantly-threatened tariffs haven't taken effect yet, some economists arge that there is a link to the protectionist chatter...

“It might be that companies are anticipating trade becoming more difficult with China or with the U.S. and are adjusting their supply chains,” said Joanna Konings, senior international trade economist at ING in Amsterdam.

But one thing seems certain, it is not about to improve anytime soon as 'actual' tariffs are enacted...and retaliated to.

“If the trade dispute becomes more complicated, if both sides are not willing to change their stance, you could end up with a much more serious disruption,” said William Yuen, investment director at Invesco.

All of which seems to be increasingly priced into the bond market...