Central Banks Prepare for an Age of Trade Uncertainty

The United States' (US) intent in recent steep trade tariffs is not just fiscal; it seeks to set up a new economic order.

- AJAY SAGAR

Starting with trade reset, a correction has commenced that is global and not nation-specific. A new world economic order is still emerging. It will have unpredictable consequences with no clarity as to what that will entail. Many central banks are considering a variety of options to handle the evolving complex and dynamic situation for discovering the new normal.

The shape and structure of global economic order will change, with no principles or rules having yet evolved. It's now clear that tariff shock is designed to restructure and redirect trading patterns and check deficits. Two nations stand out for trade-driven imbalances: the US (large deficit) and China (large surplus), both in the region of $1 trillion each. Every nation's trade and current account imbalance is unique and it is going to be reset with the emerging new economic and trade order. The caveat being that the trade pattern needs to deliver prosperity, be mutually beneficial, and sustainable.