Nick Kundnani with the Effect of Trade Tension on Global Deals
It’s commonly accepted that trade wars aren’t beneficial to the global economy, but the present tensions in the realm of international business don’t seem to be preventing deals from being made. In fact, quite the opposite seems to be true. Mergers and acquisitions hit a record high in the first three quarters of 2018, peaking at a remarkable $3.3 trillion in total. And while this number may seem high, much of that market share is hogged by a small number of M&A deals. One hundred megadeals constituted a hefty half a trillion. And while deals, in general, seem to be operating at a steady clip, cross-country deals, strangely enough, seem to be outperforming intrastate deals. At a total of $1.5 trillion, deals made across borders improved by over 50% from the year before and demonstrated a 37% advantage over general M&A growth.
But it would be foolhardy to assume that this growth will continue abated. The results of geopolitical decisions on the global economy aren’t always immediate, and President Trump’s approach to trade is both dramatic and unlikely to change anytime soon. With an eye towards weakening China’s economic strength and rewriting deals with other nations throughout the world, the real impact of American trade policies could be just over the horizon. Banks and businesses are already warning about the impact that American protectionist policies could have on the larger global market. In fact, M&A activity could already be in the process of slowing. The recent months have seen only four big-ticket deals, a fact that could suggest the year 2018 is top heavy in terms of global deals.
And while Trump’s efforts towards America protectionism may represent the most dramatic move towards a more tense trade environment, it’s just the spearhead for a growing movement. The past decade has seen a decline in the trust of globalist policies throughout the world, a sentiment that Trump has used to his advantage and amplified in ways that prior administrations would never have considered. That decline in trust was preceded a dramatic move towards trade liberalism, one that tapered off in the wake of the financial crisis, and many have responded in kind by turning 180 degrees, drawing back on international trade and implementing higher tariffs and protections.
But these moves away from economic liberalism could presage hard times moving forward. More liberal trade policies saw an increase of 3 to 5% in the overall global standard of living, but hawks like Trump are betting on the notion that stricter trade policies will benefit the American people even if that comes at the expense of greater global prosperity. It’s hard to know exactly the impact tariffs and protectionism will have on the future, but corporations may be wise to batten down the hatches and prepare for lean times.