LONDON, March 22 (Reuters) - As Donald Trump's 'America First' trade agenda turns from steel imports to Asian technology and intellectual property, a global trade war is now seen as the most serious risk for global investors, according to a recent survey.
The growing protectionist rhetoric has helped push Europe's Stoxx 600 index down more than 2 percent this week. Tech stocks have fallen furthest, not helped by the scandal over misuse of Facebook users' personal data.
For now, though, the reaction of European industrial stocks that could suffer most in a real trade war does not convey a sense of panic.
An index of the region's industrial companies fell sharply in early March when the U.S. President proposed import tariffs on steel and aluminium. Since then they have recovered and performed largely in line with their U.S. peers. (U.S. MSCI industrials sector index is shown here in orange, European industrials in purple)
The next test comes later on Thursday, when Washington is expected to unveil up to $60 billion in new tariffs on China targeting technology, telecoms and intellectual property.
Edmund Shing, head of equity derivatives strategy at BNP Paribas, notes that U.S. investors have been investing a lot more in foreign equities and emerging markets recently.
"If you were really worried about trade issues, you wouldn’t necessarily put as much money into EM equities because that will include Mexico but more importantly, China," he said.
This, said Shing, is because investors think Trump's tariff moves are a negotiating tactic to secure better terms with the European Union, China and NAFTA partners "as opposed to a particular desire to ratchet up on actual tariffs per se".
Goldman Sachs said we are "probably approaching peak trade risk in the near-term", while Citi analysts reckon the recent growth in world trade will overcome the impact of tariffs.
They point to figures showing strong growth in global goods trade volumes in 2017, and note that trade growth has now surpassed global GDP growth once again.
"For now, our base case is for moderate increases in global protectionism and for these to mostly remain targeted at specific sectors," they wrote.
Shares in European industries in the firing line of a potential trade war took a hit on March 2 after Trump proposed the steel and aluminium tariffs, and steelmakers have continued to weaken:
But U.S. aerospace companies have underperformed Europe's - possibly reflecting the higher risk of trade retaliation damaging U.S. defence exports. Boeing jets have often been cited as a potential target by China, which has been developing the C919 as part of its civil aerospace ambitions.
Automakers - big consumers of steel - have had a mixed run, but two of the European manufacturers most exposed to the United States - BMW and Fiat Chrysler - are trading back where they were before Trump's tariff announcement.
The chart below shows European aerospace and autos stocks (purple and blue) have recovered from sharp losses after the Trump announcement to slightly outperform their U.S. counterparts (orange and green).
"Risks (for the auto industry) are mitigated somewhat by high use of locally produced (c80%) and recycled (c40%) steel," Citi analysts said in a note on trade war risk.
The relative resilience of European industrial stocks can't be explained by an improving economic picture. Euro area PMI data - a key indicator of industrial sentiment - saw their sharpest monthly fall in six years at the end of February, while comparable U.S. indicators are on the up.
Economists see only a small impact on the global economy of the higher U.S. steel and aluminium tariffs. But a full-blown trade war would be something else.
The OECD projects that a permanent 10 percent rise in trade costs would lower global gross domestic product by 1-1.5 pct in the medium term, in figures cited by Citi analysts.
European drinks maker shares dropped when Trump’s steel move prompted the European Union to threaten higher tariffs on imported American whiskey.
Simon Hales, Citi's EMEA beverages analyst, said any EU retaliation around imported American whisky could prompt U.S. retaliation targeting imported EU spirits.
But for now investors appear to be taking that in their stride.
Reporting by Tom Pfeiffer Additional reporting by Helen Reid Graphics by Ritvik Carvalho Editing by Hugh Lawson