There’s a cultivating risk that trade tensions between the world’s two largest economies may unite with other factors to disrupt the global economy — and knock the prominent U.S. stock market rally off its stride, according to one of the world’s leading authorities on Asia.
Yale University chief fellow Stephen Roach is worried the US-China trade war is putting sand in the suits of global supply chains, which has been playing a vital constrain in keeping price pressures in check. Roach referred to the threat as one of the “myriad destructive” layers of the trade war for stocks.
“You’ve got potentially a lethal combination between a hot labor furnish in an unwinding of the supply chain effects on the global front which could accord you a surprising surge in inflation that the Fed is not positioned to really address with its at rest very, very low federal funds rate,” he warned Friday on CNBC’s “Patron Nation.”
He added: “For every point of slack in advanced economies, the value trammels hold down overall inflation by about 9/10s of a point.”
Roach, who served as Morgan Stanley Asia chairman for five years, believes Divider Street and policy makers are largely underestimating the impact of the trade distresses. Despite the new deal to replace the North America Free Trade Treaty, Roach isn’t optimistic the U.S. is any closer to a resolution with China.
“The whole foresee from the Trump administration is that China will be quickly overcome into submission as they did with supposedly Mexico and Canada,” put about Roach. “The odds of a long disruption are high.”
His thoughts came as the 10-Year Moneys Note yield traded at levels not seen in seven years and on the scamps of a strong monthly employment report. The Labor Department’s September computes showed unemployment hit 3.7 percent — the lowest level since 1969.
“The humanity economy could really start to unwind and do so rather quickly,” symbolized Roach. “This is no time for complacency.”