All Quiet on the Western Front was the title of the classic novel about the first world war, written by Erich Maria Remarque. To me, the book pretty closely describes the current situation in Western financial markets. But is it now, as it was then, a case of the calm before the storm?
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For the answer, we can turn to the work of another writer, William Butler Yeats. In his poem, The Second Coming, he penned the lines, “Things fall apart, the centre cannot hold; mere anarchy is loosed upon the world.” This was prescience on his part, given that events later unfolded into the Great Depression and a second world war.
Today, the “centre” might be used to describe the United States. Under the Trump administration, the country appears to be either engaged in a process of – if not outright self-destruction – destruction of its role as the world’s premier economic power. What is “falling apart” is the post-war global economic order, under the impact of both trade and hot wars.
Yet, despite all this, a strange kind of apathy or complacency seems to have gripped stock markets in the US, Europe, Asia and beyond as they maintain their bullish outlook or even register record highs in some cases. What could, and likely will, bring them down to earth?
First, we need to understand why stock markets continue to ride so high while they are in the grip of Trump’s trade wars, conflicts in Ukraine and the Middle East and tensions in East Asia, not to mention precariously high global debt, fears of a financial crisis and, of course, climate change.
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We’re in the early days of tariff threats under this Trump administration, so it is understandable that worries about their impact are muted among investors. But that only means that, absent a sudden withdrawal of these levies, the impact will be much greater once they begin to bite. That is how protectionism feeds upon itself through retaliation and plummeting confidence.