The Trump administration’s decision to impose tariffs on aluminium and steel imports had triggered a trade war with several countries including China, which announced retaliatory measures.
“Well, I think at this point the biggest risk is the combination of rising interest rates and some untoward action on trade. I think it’s the perception that with all the leverage that’s out there, interest rates rising are already an issue that we’ll have to deal with, but that’s out there.
“The great uncertainty is what happens with the trade if we have a trade conflagration in the next few months that could really hamper the global economy,” Rajan said.
“Or do entities, do players get locked into positions which mean they eventually have to carry out their threats in which case we are in a lose-lose situation,” Rajan said.
“The problem to some extent at this point is that people have put forward their offers in some sense and we have to see if they actually reach a negotiation point where they can back down. Some of these situations can get out of control very quickly,” he added.