As the Trump administration continues to threaten tariffs targeting a variety of imported goods, from electronics to washing machines to automobiles, many market commentators have suggested the US-led trade skirmishes could turn into a trade war.

While the fear of a potential trade war has heightened market volatility, our investment leaders haven’t been overly concerned that the trade disputes will derail the global economy—at least not yet.

Here, we highlight three things for investors to think about when it comes to global trade and the markets.

1. China is the US’ Largest Trading Partner

While there are a lot of misunderstandings about global trade, the fact is, China is the largest US trading partner in terms of goods, with $636 billion in bilateral trade during 2017.1 And, as the chart below shows, the US trade deficit with China stood at $375 billion, as of 2017.2 This imbalance—far larger than with other US trading partners on an absolute basis—is often cited as a reason for tariffs.

While perhaps the bigger global economic threat is a rise in protectionism, trade can’t simply be shut off between China and the United States, as Franklin Templeton Emerging Markets Equity’s Sukumar Rajah noted recently:

“This issue is another example of a trend of rising protectionism globally that remains a potential risk facing the markets. But despite the tit-for-tat measures we’ve seen between United States President Donald Trump and Chinese officials, we don’t think this war of words will affect China in the long term. In our view, the importance of bilateral trade for both sides should ensure they maintain stable relations. Without stable relations, it would be more difficult for Chinese or US companies to navigate complex international supply chains.” – Sukumar Rajah, April 23, 2018.