Michael Metcalfe

This week Michael Metcalfe, global head of Macro Strategy, asks who is winning the trade war. He comments, “If the sentiment of manufacturers is any guide, the US is losing out more from the escalation of the trade war.

US manufacturing sentiment has collapsed in the past nine months, spectacularly so in the last quarter.

Meanwhile, their Chinese counterparts, at least by the official measure, are no less cautious than they were at the beginning of the year. Furthermore, the Caixin/Markit purchasing manager index is even more bullish with sentiment at its highest level in two years.

“This recent data appears to corroborate the findings of a new paper, Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy, from Harvard University, the University of Chicago and the Federal Reserve Bank of Boston in which Alberto Cavallo and his co-authors find that the impact of the tariffs have fallen largely on the US.

“If economic rationale was a key driver, the pressure to agree a trade truce soon is growing. The only question now is when the economic rationale will coincide with the immediate political need.”

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