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Komal Sri-Kumar

Markets Are Wrongly Discounting Trade Risks

The time to shift to a more defensive stance is now.

Wall Street is too complacent.

Wall Street is too complacent.

Photograph: Bloomberg

U.S. financial markets seem unfazed by a sequence of negative developments on the trade front. The May 17 date set by Paul Ryan, speaker of the U.S. House of Representatives, for Congress to approve a revised North American Free Trade Agreement has passed with no resolution. The European Union, a major U.S. ally, resents the June 1 deadline President Donald Trump has set for imposing tariffs on steel and aluminum unless the EU accepts reduced export quotas.

Perhaps most important, Trump said last week that he doubts trade negotiations with China will succeed. He had demanded that China’s trade surplus with the U.S. be reduced sharply from $375 billion to $175 billion, a target that the Chinese authorities have not been willing to meet, we learned Sunday. The two sides have avoided a trade war so far, U.S. Treasury Secretary Steven Mnuchin said in a television interview Sunday, but they still seem far apart in their positions. Failure of talks could still prompt China to impose countervailing duties on U.S. agricultural exports, and limit the activities of companies such as Apple and Google that have major operations in that country.