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Hermes Senior Economist reacts to the Trump-Kim summit

The significance of today’s meeting between Trump and Kim is quite dubious. While the display of a bromance between the two leaders is a welcome development, boding well for future negotiations, the agreement they signed contained very little in the way of substance. The suspicion is that today was more of a distraction from serious issues for the global economy – notably concerning trade – still looming in the background.

Starting from the encouraging developments, the chemistry between Trump and Kim was positive, suggesting there is an open channel for negotiations between the countries. However, the document the two leaders agreed on delivers only vague assurances and commitments, failing to detail a plan for immediate action.

Meanwhile, the elephant in the room is the sustainability of global trade as the US administration has been questioning existing trade policies. Having slapped higher tariffs on imports of steel and aluminium from its closest allies only ten days ago, the US administration is now about to release a list of Chinese imports which will be subject to higher tariffs. These measures, which will target $50bn of Chinese imports at this stage, should be announced by the end of this week and become operative in short order.

 While these moves should have a limited macro impact in isolation, they have the potential to disrupt an otherwise positive economic outlook, if they were to trigger broad-based retaliatory reactions. According to estimates by the OECD, a generalised 10pp increase in import costs (due to higher tariffs across the board) would result in a 2% reduction in global output in the following few years. In addition, the uncertainty concerning trade policies has the potential to negatively affect confidence, in turn holding back investment decisions.

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