Without pouring water on the “love fest,” we contend that the deal struck between China and the U.S. leaves much to be desired.

We believe the impeachment inquiry could have an adverse impact on the ongoing U.S.–China trade conflict, but there may be a silver lining for NAFTA 2.0.

The U.S. has been officially engaged in trade talks with China since March 2018 and has had very few tangible results.

New U.S. tariffs on Mexico would add to the direct economic costs of the string of tariff hikes enacted during this administration.

With the U.S. and China raising tariffs on each other’s goods, we may be entering a prolonged period of trade tension.

While we believe that optimism regarding an evolving and eventual trade deal between the U.S. and China is well-placed, we would caution investors against growing complacent about trade policy risk more broadly.

While we believe the shutdown on its own would have only a modest impact on growth, the combined impact of this and other short-term drags on the economy could slow first-quarter growth close to the zero mark.

In our outlook for 2019, we believe politics and policy out of Washington will continue to drive – and in some cases, weigh on – markets, much like they did in 2018.

While divided governments have generally been decent for markets, we think a defensive portfolio posture is prudent.

From an investor’s perspective, the most important takeaway from the midterm elections is that trade policy risk will likely continue unabated no matter the outcome.

Overall, we believe the administration’s recent trade policies and proposals pose a negative risk to our U.S. economic outlook over the cyclical (six- to 12-month) horizon, while the longer-term impact is less certain.

With the number of potential catalysts in the next month or so, we could see trade risk escalate.

We expect the direct economic impact of current trade actions to be relatively minor (and dwarfed by the pro-growth measures passed to date), but further escalation of trade tensions could strengthen the economic headwinds.

We believe the trade actions with the most significant potential economic and market impact have yet to unfold.

U.S. Tax reform is likely to be a net positive for corporate bonds, but active credit selection remains key.