Veteran Canadian economist David Rosenberg says U.S. President Donald Trump’s trade policy proposals could plunge the world economy into recession if they are implemented.
“In so far as Trump carries through with his pledges, it’s going to be enough to cause a global recession,” Rosenberg, founder & president of Rosenberg Research, told BNN Bloomberg in a Tuesday interview.
“It would definitely create the conditions for a global economic downturn that I’m not so sure the White House is taking seriously.”
Trump has made numerous threats against some of his closest trading partners since he was elected last year, promising to implement sweeping tariffs on goods entering the U.S. from Canada, China, Mexico and elsewhere.
The U.S. president’s rhetoric around trade has led to unprecedented uncertainty in world financial markets, Rosenberg said.
“Most of the uncertainty measures that we’re paying attention to are anywhere between two and four standard deviations above historical norms… we always live in an uncertain world, but this is an uncertain world on steroids,” he argued.
“And I would say that it’s probably 100 per cent related to the chaotic trade policy threats coming out of the White House, I would pin it almost all on that.”
Despite the underlying economic uncertainty and ongoing trade tensions, equity investors have continued to pour money into U.S. markets. The S&P 500 Index drifted lower before Tuesday’s close but was still near the all-time closing high set last month.
Rosenberg said he believes the stock market is overvalued, and that many traders are overlooking the inherent risks involved in equity investing.
“You have an equity risk premium (ERP) in the U.S. at zero… so if you believe in the longevity and the veracity of the U.S. bull market, then you have to be of the view when the ERP is zero that the equity market has miraculously become as riskless an asset class as Treasury bills,” he said.
“Frankly I don’t believe that’s what I’d define as being rational, but we’ve seen the markets behave this way in the past. It doesn’t usually end well, but in the process, everybody seems to enjoy it, but that’s the reality – ERP at zero, to me, is danger zone.”
