Nobel Prize-winning economists are optimistic the protracted Sino-US trade war can eventually be resolved – to some extent – although residual tensions may remain.
The trade war has come at a time when China has risen to become a global economic power, according to Michael Spence, Nobel laureate and professor of economics at New York University, who was speaking during a UBS event entitled “UBS Nobel Perspectives Live” in Hong Kong on Tuesday.
Anyone who is forecasting what is going to come out is just rolling the dice ... The 2020 presidential election in the United States is complicating the situation and the contentious environment there is not likely to change anytime soon
Robert C. Merton
Nobel Prize-winning economist and professor at Massachusetts Institute of Technology
Spence said both China and the US can come to an agreement on issues such as market openness, intellectual property, and subsidies, but reconciliation between the two sides would be difficult – particularly in regard to digital technology as this concerned national security issues.
“We can partially resolve these things if the negotiators work hard, but there will still be residual tensions,” added Spence.
Robert C. Merton, another Nobel Prize-winning economist and professor at Massachusetts Institute of Technology, said nobody could accurately forecast what is going to happen in terms of the ongoing trade tensions between the world's two largest economies.
“Anyone who is forecasting what is going to come out is just rolling the dice,” said Merton. He added that the 2020 presidential election in the United States is complicating the situation and the contentious environment there is not likely to change anytime soon.
However, Merton said he was confident that eventually the two nations are going to work out a deal, however costly the process will be – a conclusion shared by Spence.
While factors such as negative interest rates and an inverted yield curve may indicate a recession is likely, Merton said they were only part of the story.
Merton noted that some analysts believe there is only a 25 percent chance of an economic recession, while the US Federal Reserve put it at 38 percent.
He suggested investors look at more than just bond or interest rates, but also riskier markets – shares and derivatives – which offer indicators of how much people are willing to pay for insurance.
“If it goes up in price, it’s an indicator either the world’s going to be more risky in future or people have become more adverse to risk and are willing to pay more for insurance,” explained Merton.
Being flexible is something investors want to do when facing uncertainty, as investing defensively is better than making bets under such circumstances, he advised.
Spence said he would invest a significant portion of his money in the fintech, healthcare and retail industries during this time of global uncertainty.
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