Potholes on the Road (Part 1)

What could disrupt the global economy?

The economy has grown for seven consecutive quarters, and any future downturn seems remote. Leading indicators are trending higher. But portfolios don’t prosper via complacency. It’s worthwhile to look at what might a problem.

What worries me is trade. Not current trade. Our exports and imports have been growing quite well, and global trade volumes have been accelerating. What seems to be difficult now is the political calculus around trade.

The math is straightforward: David Ricardo demonstrated the Law of Relative Advantage almost 300 years ago: when people do what they do best, the total economic pie grows, apart from education, technology, or population growth. This truth has been at the foundation of global economic prosperity since the Marshall Plan. US idealism and economic hegemony benefitted the world.

But there seems to be a chilling in the political atmosphere around trade. There are fears that if the Chinese invest too much in the US they will somehow "own" America; criminal charges against the IMF head in New York have elevated the fortunes of the nativist National Front party in France; elsewhere in Europe the sovereign debt crisis threatens the unified Euro zone. And xenophobia doesn’t need help: people are always afraid that immigration will take their jobs.

If trade decreases and barriers to free exchange multiply, global growth will slow. That won’t be good for anyone. We need to keep a close eye on anti-trade political movements. If they gain serious traction, watch out.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T12:11:21+00:00May 16th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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