Dalio, Wolf, Shiller mull the wars of America First

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The titans are out and they do not like what they see. First up, Ray Dalio:

Politics is playing a bigger role in influencing the markets than is typical, and I (and others) am still trying to figure out where Donald Trump is taking us, especially as it regards trade and other wars. Besides prompting me to think hard and dig deep into what’s now happening, it is leading me to delve deeper into past trade and military wars to see their effects on economies and markets. I will pass along my findings when I complete the examination. In the meantime, I will share some of my ruminations for the little that they are worth.

Since Donald Trump sounds more willing to enter into a trade war than any president since Herbert Hoover, and since starting a trade war is like throwing rocks in the gears of the world economy, his recent moves are naturally scary to the markets. However, thus far what he has actually done is modest and appears significantly politically motivated, so what we are seeing could be a negotiation tactic and a political move that needn’t mean a trade war is likely. Also, as expected, the Chinese response to his move was modest, so thus far we have seen a lot of threatening without much damage, which is understandable ahead of midterm elections. If this is the negotiating that I expect, the next move will be toward some trade agreements that will look like victories for Trump, so tensions will subside and the markets will like it. That’s the most likely scenario. I would consider that scenario to be broken if there is any new worsening in trade relations with China from here. We will find out soon enough.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.