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protectionism in advanced economies and tighter financial conditions as U.S. monetary policy normalizes ... make[s] for a more challenging environment for emerging market and developing economies going forward.” But not all economic experts agree. Officials at some global investment firms believe that such concerns may be overblown and that trade within emerging mar- kets is now more important than trade with the United States.
In addition, Trump has also threat- ened to implement substantial tariffs on steel, lumber, and many other im- ports in an effort to protect U.S. work- ers. Economists worry that such mea- sures would create massive economic spillovers worldwide, including a dom- ino effect of retaliatory tariffs by other nations, a tightening in financial con- ditions in many major economies, and a decline in international cooperation in trade and other areas.
One nation that sits directly in Trump’s crosshairs is Mexico, whose economy has benefited greatly from NAFTA. Now that Trump has trig- gered the NAFTA renegotiation pro- cess—negotiations must start no later than August 18, 2017—Mexico is faced with trade uncertainty and a tighten- ing financial market. Its economy is expected to grow only 1.7 percent in 2017, which may be enough to decrease domestic consumption and foreign in- vestment. But with its ongoing infra-
The most sluggish economies in 2017 will be Brazil and Japan, with projected growth rates of 0.5 percent and 0.9 percent, respectively.
structure improvements and two de- cades of standardized trade practices, Mexico still presents some attractive, cost-effective investment opportuni- ties for those who are willing to stom- ach a bit more risk.
WHAT OF BREXIT AND CHINA?
Of course, there are other econom- ic worries in the world that originate from outside U.S. borders. The United Kingdom’s stunning decision last year to part ways with the EU initially sent shockwaves through British markets. But the UK economy has since stabi- lized and is expected to outpace the EU with a 2 percent growth rate in 2017. Conversely, the EU will have to ad- dress the sudden decrease in funding (UK currently funnels some €5 billion to Brussels each year), and emerging markets like Turkey, Qatar, and Paki- stan that currently trade with the UK may experience a jolt if the UK decides to import fewer goods than it did when it flew the EU flag.
One Brexit benefactor could be China, which finds itself as the EU’s strongest world power ally. Increased EU cooper-
ation would likely help China—which is dealing with a potential domestic housing bubble, a rapidly aging popu- lation, and a slowdown in growth due to a 2015 decision to restrain exploding credit expansion—further transform its economy into a free market system. But if China continues to struggle, it could tighten its own fiscal policies. This in turn could spill over into other major economies that trade with Chi- na, ultimately leading to another glob- al trade slowdown.
CAUTIOUS OPTIMISM
As the world churns through the sec- ond half of 2017, there are some signs that nations are heeding the warnings from the IMF. At a May meeting of the G7 nations, President Trump ap- proved a clause in a communiqué that urged the attendees to “fight trade protectionism.” Global economic num- bers from the first quarter of 2017 are meeting or exceeding expectations, unemployment is gradually decreas- ing in the United States and Europe, and emerging markets are benefiting from higher commodity prices. The hope is that these conditions will slow- ly build momentum, allow the world to completely recover from last decade’s economic downturn, and perhaps even return to pre-recession growth levels. But this will only happen if all nations continue to work together to achieve common economic goals.
IS BREXIT THE FIRST OF MANY DOMINOES?
UK and the rest of Europe brace for an uncertain future
60% 50% 40% 30% 20% 10%
ITALY FRANCE SWEDEN BELGIUM POLAND GERMANY SPAIN HUNGARY
SOURCES: lpsos Mori, Bloomberg; Electoral Commission | Courtesy of: visualcapitalist.com
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