Are Trade Wars Deflationary Or Inflationary: Here Is The Answer

When it comes to trade wars, such as the tit-for-tat escalation currently being waged between the Trump administration and the rest of the world, one burning question that investors have to answer is whether the outcome of such a trade feud will be inflationary - in the form of rising consumer costs as import prices rise as corporations pass on tariffs costs to end buyers - or deflationary - as the impact of escalating tariffs eventually results in a broader economic slowdown: the answer will determine not only capital allocation and monetary policy decisions but would have sweeping economic consequences across the globe. 

Now, thanks to an analysis by SocGen, we have an answer: it depends, or rather "Inflationary short term, disinflationary medium term."

To approach the problem, SocGen parsed the newsflow for keywords that are associated with inflation and linked with “trade war”-related keywords, and repeat the same exercise for disinflation/deflation.

 

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