Protectionist push

The substantial escalation in the U.S.-China conflict – and unpredictability of U.S. policy actions – have injected additional uncertainty into business planning, threatening to weaken
economic activity.

Persistent geopolitical uncertainty
BlackRock Geopolitical Risk Indicators (BGRIs) for global trade and Gulf tensions, 2006-2019

BlackRock Geopolitical Risk Indicators (BGRIs) for global trade and Gulf tensions, 2006-2019

Source: BlackRock Investment Institute, with data from Refinitiv Datastream, October 2019.
Notes: See BlackRock’s Geopolitical risk dashboard for full details. We identify specific words related to geopolitical risk in general and to our top-10 risks. We use text analysis to calculate the frequency of their appearance in the Refinitiv Broker Report and Dow Jones Global Newswire databases as well as on Twitter. We then adjust for whether the language reflects positive or negative sentiment, and assign a score. A zero score represents the average BGRI level over its history from 2003 up to that point in time. A score of one means the BGRI level is one standard deviation above the average. We weigh recent readings more heavily in calculating the average. The BGRI’s risk scenario is for illustrative purposes only and does not reflect all possible outcomes as geopolitical risks are ever-evolving.

Ongoing trade frictions and simmering Gulf tensions underscore the risk of supply shocks. We view the latest détente in U.S.-China trade tensions as temporary as it does not address strategic issues.

Multi-decade long spread of globalization reversing
Global trade as % of GDP, 1960 - 2017

Global trade as % of GDP, 1960 - 2017

BlackRock trade nowcast vs. activity, 2006 2019

BlackRock trade nowcast vs. activity, 2006 2019

Sources: CPB World Trade Monitor, BlackRock Investment Institute, with data from Refinitiv Datastream, October 2019.
Notes: The chart on the top shows world trade as a percentage of global GDP. The chart on the bottom shows the three-month annualised percentage change in real global goods trade volume (in green) and a real-time "nowcast" (in orange) of where that trade volume may stand in three months' time. The nowcast uses principal component analysis based on 50 indicators, such as exports from South Korea and Taiwan, German manufacturing surveys and the export order components of global PMIs, to track global trade activity. Forward-looking estimates may not come to pass.

The surge in trade protectionism marks a sharp reversal from decades of increasing openness. Our nowcast points to further deterioration.

Market implication: We favor reducing risk, including raising some cash.

Are we headed for a recession?
We don’t think so - at least in the short run.
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Meet the authors
Philipp Hildebrand
Vice Chairman
Philipp Hildebrand, Vice Chairman of BlackRock, is a member of the firm's Global Executive Committee. He is also Chairman of the Financial Markets Advisory (FMA
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprietary ...
Elga Bartsch
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment Institute ...
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for developing ...