The Trump administration’s on-again, off-again trade war with the world’s major economies—especially China—over the past 17 months has cost the U.S. equity market $5 trillion worth of foregone financial return, a new report by Deutsche Bank has found.
“The costs of the trade war in our view are about its indirect impacts,” the German investment bank’s chief strategist, Binky Chadha, said in a note to clients on Friday. “The trade war has been key in preventing a recovery in global growth and keeping U.S. equities range-bound.”
The $5 trillion lost return is equivalent to 12 years of America’s bilateral trade deficit with China, he noted.
Deutsche Bank’s calculation is based on the assumption that the U.S. equity market would grow at a 12.5 percent annual rate had President Donald Trump not started the trade war. The S&P 500 index had been appreciating at this pace since post-recession 2009—until Trump ignited the trade war with China in January 2018.
In the most recent month, the S&P 500 fell 5.33 percent as a result of a new round of tariff hikes on Chinese imports and the president declaring a full-blown tech war against Chinese telecom giant Huawei.
Deutsche Bank strategists led by Chadha also challenged the popular view that the trade war had done little damage to long-term economic prospects because the S&P 500 benchmark still stood at an all-time high as of Thursday after weeks of heavy selling.
“It is tempting therefore to conclude that equity markets are complacent or even pricing in the long-term gain relative to the short-run pain. We would disagree strongly,” Chadha wrote.
The real cost of the trade war is probably even higher, as the Dow Jone Industrial Average plunged 250 points on Friday after the president threatened tariff hikes on a list of Mexican products Thursday night.