The Trump administration’s recurring trade war with the world’s major economies – especially China – over the past 17 months has cost the U.S. stock market a $ 5 trillion drop in value, a new report by Deutsche Bank found.
“In our opinion, the costs of the trade war relate to its indirect effects,” said the chief strategist of the German investment bank, Binky Chadha, in a statement to customers on Friday. “The trade war was key to preventing global growth from recovering and maintaining the reach of US stocks.”
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The $ 5 trillion lost return equates to 12 years of America’s bilateral trade deficit with China, he noted.
Deutsche Bank’s calculation is based on the assumption that the US stock market would grow at an annual rate of 12.5 percent if President Donald Trump had not started the trade war. The S&P 500 index had risen at this rate since the 2009 recession – until Trump sparked the trade war with China in January 2018.
Last month, the S&P 500 fell 5.33 percent as a result of a new round of tariff increases on Chinese imports, and the president declared a full technology war on Chinese telecommunications giant Huawei.
Chadha-led strategists at Deutsche Bank also challenged the widely held belief that the trade war had little impact on the long-term economic outlook, as the S&P 500 benchmark was still at an all-time high after weeks of strong sales on Thursday.
“It is tempting to conclude, then, that stock markets are complacent or even pricing long-term profit relative to short-term pain. We wouldn’t agree, ”wrote Chadha.
The real cost of the trade war is likely even higher as the Dow Jone Industrial Average fell 250 points on Friday after the president threatened tariff increases on a list of Mexican products on Thursday night.