Trade tensions between the U.S. and China have broad economic implications that go beyond bilateral trade. Our base case is that they will not escalate into a trade war. We see the trade actions implemented so far as limited and unlikely to derail the benign economic and market backdrop-as long as they do not worsen into a trade war that could harm global growth prospects. The chart below shows how deeply integrated global production and supply chains are, based on data from 2011 that we believe still captures the trade landscape today.

Components from abroad represent nearly half of Chinese manufacturing exports. For Chinese electronics exports-a key sector likely to be affected by any U.S. tariffs-three-fifths worth of the value added is created beyond Chinese borders. The U.S., Europe and Japan are all big component and intellectual property suppliers to China for goods to be re-exported and sold elsewhere. On the flip-side, the U.S. supply chain is much more homegrown. U.S. tariffs on China-and any resulting retaliatory measures-could cause widespread economic fallout by affecting such global supply chains if tensions escalate.

No trade war for now

March Global macro outlook

Worrisome triggers

Q2 2018 Global Investment Outlook Weekly commentary Richard Turnill is BlackRock's global chief investment strategist. He is a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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