The U.S. stock market has left $5 trillion on the table over the past 17 months due to President Trump’s multi-front trade war, Deutsche Bank estimated on Friday.
“While other factors also arguably played a role, the trade war has been key in preventing a recovery in global growth and keeping U.S. equities range bound. Foregone U.S. equity returns from price appreciation for 17 months are worth $5 trillion,” Binky Chadha, the bank’s chief strategist, wrote in a Friday note to clients obtained by Marketwatch.
Chadha noted that the cost was similar to that of the European financial crisis in 2011-2012 and the economic shock following the collapse of crude oil prices in 2014-2016.
“In terms of duration, the current episode is still 5-6 months short of those two episodes. But it is notable that the current episode has occurred in a context of significantly stronger U.S. macro and earnings growth and a lower unemployment rate,” Chadha said, adding that the money left on the table is already worth 12 years of the U.S.’s bilateral trade deficit with China.
“While we subscribe to the consensus view that U.S. trade deficits reflect macro and not micro factors and trade policy initiatives are unlikely to have any impact on them, the point is that even if one did take the opposite view that the bilateral trade deficits are bad and that trade policy would fix them, the cost in terms of foregone equity returns is already worth 12 years of that bilateral merchandise deficit,” Chadha wrote.