In the early 2000s emerging markets, developed markets ex-US (as measured by the MSCI EEM and EAFE indexes, respectively) and US equities moved in close unison. Starting about 2014, however, emerging and developed markets ex-US stalled while US equities continued to rally. This largely reflects the better performance of the US economy relative to the rest of the world over this period. But in a highly integrated world economy such divergent global asset price movements tend to disappear over time as trade flows even the playing field. Thus in the absence of disruptive trade barriers, global asset prices should again move more closely up and down. But what about the increasing threat of tariffs?
As the painful history of the late 1920s going into the 30s has shown using trade barriers to pursue domestic objectives threatens the entire global economy – implying sharp sell-offs in US as well as international equity markets.
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