President Trump’s imposition of trade tariffs on China’s exports are a worry but not a game changer, according to NN Investment Partners (NN IP).
The fund manager said that the new US tariffs will only affect around 2% of China’s total exports and will have little impact on emerging market growth in coming years. NN IP senior emerging markets strategist, Maarten-Jan Bakkum, commented: “Protectionist measures by one country could potentially spiral out of control, leading to more retaliation by more countries, eventually affecting a bigger share of Chinese, EM and global exports. At the same time, however, US protectionism could also lead to a stronger commitment to free trade by the other trade blocs and give a new boost to global trade growth.”
Bakkum added that there are three reasons to stay positive about emerging market growth. Firstly, Chinese growth is holding up relatively well, as the authorities have reduced financial system risks. Secondly, external imbalances in emerging markets are manageable, with relatively few countries, such as Turkey, South Africa and Argentina, having sizeable deficits. And thirdly, domestic growth in emerging markets remains positive. Bakkum added: “Far more relevant [than Trump] in the short to medium term is what happens with US interest rates, the dollar and the oil price. These factors have immediate implications for the inflation and interest-rate outlook in the emerging world.”