World Bank: Tariff increases could bring us back to 2008 crisis levels

By Joyce Yu

Global trade could tumble to levels in 2008 as a result of an increase in the pace and scope of tariffs, the World Bank warned.  The multinational finance organization notes in its latest Global Economic Prospects report, published Tuesday, “A broad-based increase in tariffs worldwide would have major adverse consequences for global trade and activity.” “An escalation of tariffs up to legally-allowed bound rates could translate into a decline in global trade flows amounting to 9 percent, similar to the drop seen during the global financial crisis in 2008-09.”

Canada, Mexico and the EU have stated to take retaliatory trade tariffs on the U.S. in response to the Donald Trump administration’s announcement last week that those economies would not be exempt from global steel and aluminum levies. The latest development followed while U.S.-China trade spat remains unresolved. Against the background of mounting debt, rising interest rates and continued trade tensions, several industrial heavyweights already forecasted the onset of another U.S. recession within the next two years. J.P. Morgan Chase chief executive Jamie Dimon recently said that the Trump administration’s trade policy could be one of the “flies in the ointment” that ends the current economic recovery.

Veteran investor and billionaire Leon Cooperman also flagged out risks in the equity markets. He said on CNBC’s “Squawk Box.” That, “I’m sympathetic to the idea that sometime in the next 12 to 24 months, there will be events that will catch the market. In other words, … I think that inflation and interest rates will catch up to the market as we normalize.”

“I would be a reducer on strength, not a buyer on strength,” he added. “I think if we get the 10-year [yield] over 3.5 percent that could be very competitive to the stock market. We’re not there yet,” he added.

Indeed, the equity market doesn’t show any signs of tiredness with tech-heavy Nasdaq index notching for the third winning day in a row. Tesla jumped 3.9% after its CEO Elon Musk reassured shareholders that building 5,000 of its mass market Model 3 cars per week by the end of June was “quite likely”. Facebook, on the other hand, fell 1.3% after two key U.S. lawmakers rebuked it for not being more transparent over its data sharing with at least four Chinese companies.

Some analysts are rather optimist about the on-going trade tensions. “I don’t think we’re going into a full-blown trade war. These are negotiating tactics,” Julien Lafargue, European equity strategist at J.P. Morgan Private Bank, told CNBC’s “Squawk Box Europe” on Wednesday.


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