Deutsche Bank: Trump’s Tariffs Have Wiped Out $5T In Value From U.S. Stockmarket

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Deutsche Bank report says that the US trade war has cost about $5 trillion in foregone returns so far.

On Friday, the Deutsche Bank estimated that the US trade war has cost its stock market about $5 trillion so far, reports MarketWatch.

Binky Chada, chief strategist at the Deutsche Bank, wrote:

“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.”

Chada based the calculation on the Russell 3000 Index, which at the beginning of 2018 had a capitalization of $28.7 trillion. Over 17 months, the foregone returns for the index total about $5 trillion.

The S&P 500 has bounced back sharply in 2019 following a fourth-quarter decline that nudged an all-time closing high in April. However, the index has declined more than 6% in May, which marked its first monthly decline since December and its worst May performance since 2010.

The Dow Jones Industrial Average failed to return to record territory before the May swoon, and also fell by more than 6% for the month.

Analysts say that these poor May performances are in large part due to an escalation in the U.S.-China trade war. Tensions between the world’s two largest economies increased after President Donald Trump announced last Thursday that he would place increased tariffs on all Mexican imports, in an attempt to pressure Mexico to halt the flow of migrants to the U.S. southern border.

Chada notes that the foregone returns are already equal to 12 years worth of the US’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.”

Read the full report here.