Trade tensions remain a critical tail risk:
Trade tensions with China have escalated and continue to be a source of uncertainty for markets. While the implemented tariffs are, thus far, not economically significant (the $34 billion implemented on both sides as of July 6 amounts to less than 0.5% of either economy), the risk of escalation remains a looming unknown. If the US administration pursues close to $400 billion in tariffs, for example, China could retaliate, and perhaps use strategies beyond tariffs on US imports, which only amounted to $130 billion in 2017. While this is certainly a risk, we see the sell-off in Chinese equities, combined with recent statements from the Chinese government around intending to keep its currency stable, as indications that China does not prefer a trade escalation or other retaliatory measures.