How the US-China trade war is hurting Britain’s economy
It is not just Brexit that is putting us at risk of a serious downturn
It’s easy to think of the trade tussle between the US and China as a pointless war thousands of miles away of no consequence to Britain. But the ripples from the clash have already reached this island and the effects will grow and multiply as the conflict drags on.
Perhaps the most direct and least obvious effect is the potential impact on the pound. So far, fears of a no-deal Brexit have been the driving force behind the currency’s slide. But if – as looks likely – the trade fight becomes protracted, threatening the global economy, the flight to safety it has already sparked will become a stampede. Investors will increasingly switch out of risky assets, such as shares and corporate bonds, and into so-called safe havens, such as government bonds and gold.
This newfound caution is likely to reduce any remaining appetite for the pound, which is vying for the title of the world’s newest risky asset. Its wild moves this year have made it look more like an emerging-market rather than a developed-market currency. And the whole Brexit process has gravely undermined the traditional view of Britain as a stable, pragmatic country, eroding with it the long-standing trust in the pound.