Rosenberg Warns Trump’s Trade Policies Might Trigger Worldwide Economic Downturn

Veteran Economist Raises Concerns Over Potential Trade Wars

David Rosenberg, a seasoned economist from Canada, recently shared his apprehensions about the trade policies of U.S. President Donald Trump. According to Rosenberg, if these proposals materialise, they could thrust the global economy into a recession.

Trump’s Trade Policies and Global Tensions

In an interview with BNN Bloomberg, Rosenberg, who is the founder and president of Rosenberg Research, expressed serious concerns. He stated, "In so far as Trump carries through with his pledges, it’s going to be enough to cause a global recession."

Trump’s numerous tariff threats towards countries like Canada, China, and Mexico since his election have stirred quite a storm. These threats, promising to impose tariffs on goods entering the U.S., have certainly created ripples in world financial markets.

Market Uncertainty and Resultant Volatility

The rhetoric surrounding these trade discussions has caused unprecedented uncertainty. Rosenberg remarked, "Most of the uncertainty measures that we’re paying attention to are anywhere between two and four standard deviations above historical norms." It’s quite like living in an uncertain world, but perhaps more exaggerated.

He believes that this chaotic environment is predominantly due to the trade policy threats emanating from the White House.

The Stock Market’s Resilient Stance

Strikingly, despite this murky backdrop, investors continue to inject funds into U.S. markets. The S&P 500 Index, for instance, showed a slight decline before Tuesday’s close but was still close to its all-time high set the previous month.

Rosenberg, however, surmises that the stock market is currently overvalued. He voiced concerns about traders possibly disregarding the latent risks in equity investments. He stated, "You have an equity risk premium (ERP) in the U.S. at zero…,” raising doubts over the perceived safety of equities compared to Treasury bills.

Equity Risk Premium and Market Rationality

Elaborating on the matter, Rosenberg noted, "Frankly I don’t believe that’s what I’d define as being rational." He acknowledges that the market has operated this way in the past, but it seldom concludes favourably. The reality, he points out, is that with an ERP at zero, one enters what he terms the "danger zone."

Investors seem to relish the current market conditions despite the risks involved, according to Rosenberg. It is crucial to tread with caution and not let exuberance obscure rational judgment.

Future Outlook

In conclusion, Rosenberg’s analysis offers a compelling perspective on the potential ramifications of current U.S. trade policies. As global trade hangs in balance, it will be prudent to monitor these developments and exercise caution in financial markets. For further insights on market dynamics and global economic conditions, visit the BBC’s business news section.