During the first half of 2018, investors were faced with conflicting signals. From a macroeconomic perspective, economic fundamentals have been very positive. On the other hand, we have seen the emergence of protectionist threats in the form of a potential trade war. These signals are likely to persist well into the second half of the year and perhaps beyond.

To date, the trade measures implemented have been limited; the value of affected trade now amounts to about $150bn globally. That is about 0.8% of overall world exports. However, discussions about introducing more trade measures are underway, driven mainly by the US administration. The amount of targeted trade, assuming tit-for-tat retaliation, could quickly rise to more than $1tn or 6% of global exports.

Trade tensions between China and the United States will likely get worse before they get worse. There appears to be no going back to the pre-Donald Trump world trade order.

Furthermore, within the current geopolitical context, the World Trade Organization [WTO] needs to be revamped, or its future could be in serious doubt. It has proven itself to be toothless in the face of these trade skirmishes. Jack Ma, chairman of Alibaba, said recently that he thinks this trade war will last 20 years.

According to the majority of macroeconomic models, the impacts of a fully-fledged trade war would be significant, but manageable. Macroeconomic models probably underestimate the impact of higher tariffs and trade wars. They do not fully consider the indirect effects of uncertainty and tighter financial conditions.

The impact of tariffs for both the United States and China should be greatest in the short term and ease over time as companies reroute their global supply chains. The longer the trade war lasts, the bigger the hit to investment as firms decide to delay capital expenditure until there’s more certainty.

A number of regional U.S. Federal Reserve (Fed) presidents have reported that companies in their regions that were considering investing off the back of the US tax bill are now delaying and deferring their investment because of worries over trade.