US President Donald Trump’s trade war, combined with a slowdown in economic growth in China, are likely to generate the most uncertainty in financial markets this year, Platinum Asset Management chief executive and CIO Andrew Clifford states.

While there are a number of risks on the horizon carrying over from last year, the loss of momentum in China and the US trade war are shaping up to be the most prominent, Clifford notes.

Others concerns carrying over from last year include: rising US interest rates, especially amid fears of inflation being fuelled by tax cuts that added stimulus to what was already a buoyant economy; the impact that funding the increased fiscal deficit could have on the US bond market; how the world’s central banks will extricate themselves from their money-printing exercises; and other politically inspired skirmishes, such as Brexit.

In his latest macro overview, published this week, Clifford notes that the impacts of China’s slowdown have been felt far beyond its borders.

“While China today is the world’s second-largest economy…it is for many goods the world’s largest market,” Clifford writes in the overview. “Not only is this the case for commodities and raw materials, such as iron ore and copper, it is also the case for many manufactured goods, from cars to smartphones to running shoes.

“Indeed, it would be difficult to think of a physical good for which China is not the biggest consumer in volume terms. As a result, China’s slowdown has been felt globally and has been a significant factor in the loss of economic momentum in Europe, Japan and many of the emerging economies.”

An important lesson from the last four years is that a maturing Chinese economy has become more responsive to domestic interest rate movements and credit conditions, Clifford notes.

A lesson from 2018 was how important China has become to the global economy, he states.

“For the last 30 years or more, the US economy and financial markets have been at the centre of every analysis of global markets,” Clifford notes. “It has long [been] a cliché to say that ‘when the US sneezes, the rest of the world catches a cold’. In 2018, the US economy was in great shape, yet the rest of the world slowed, because of China.”

The one country that has appeared immune to China’s slowdown so far is the US; however, Clifford notes it has had the benefit of a fortuitously timed fiscal stimulus in the form of tax cuts.

The greatest risk facing the global economy is that the last driver of growth, the US, is now poised to slow, Clifford states.

“Housing and auto sales have fallen in response to higher interest rates,” he writes. “The benefits of the tax cuts have, for the main part, been expressed. The impact of tariffs on business is now being felt. While their direct impact on the US economy is perhaps not significant, the tariffs and the broader trade tension likely have begun to affect both consumer and business confidence, particularly as we await the outcome of the US-China negotiations.”

Furthermore, the political environment in the US following the mid-term elections is also likely to be a drain on confidence and the partial shutdown of the US federal government over funding debates may well be a prelude for the slower pace to come, Clifford adds.

“While similar shutdowns have occurred in the past, with relatively minor disruptions, they certainly add to the distractions faced by both businesses and consumers. President Trump’s infrastructure program could potentially be the next boost to growth, though it [would be] unlikely to have much impact within the next 12 months, even if it were to eventuate.”