By James Mackintosh 

Global trade's in trouble, and investors don't seem to care. One of the ironies of the election of a fierce nationalist in the U.S. is that it coincided with what looked like a recovery in global trade, after years of stagnation.

We'll find out in coming days if President Donald Trump and his administration are willing to jeopardize trade by slapping tariffs on steel on national security grounds -- bypassing international rules and opening the way to a tit-for-tat response. But even without new tariffs, the nascent trade recovery isn't all it seems.

Investors have rightly seen tariffs as good for U.S. steel stocks, which have been pummeled by international competition and weak balance sheets. But there seems to be little fear of a full-blown trade war developing, either in steel -- where shares of major foreign competitors were oblivious -- or more widely.

Why aren't investors more concerned about the risk of globalization being put into reverse gear? One answer is that few really believe Mr. Trump wants to start a trade war. His campaign rhetoric led investors to dump the Mexican peso after he won, anticipating trade troubles. But the peso is now stronger than it was before the November election, and the first tariffs he imposed were on Canada, not the target his voters expected. Aside from Canada, his trade actions have so far mostly involved fiddling around the edges, commissioning reports and improving the enforcement of existing rules.

Another answer is that investors have been discussing "deglobalization" for a long time, so the idea of increased trade friction comes as no surprise (though a full-on trade war would be a shock). The 2007-2008 financial crisis led to a collapse in global trade, and after a brief recovery it flatlined for years. Banks also retreated from financial commitments abroad, and there has been no return to the pre-Lehman days of grand cross-border banking acquisitions. Creeping protectionism has been visible in the rising number of minor trade disputes.

The data showed a clear pickup in trade in the first quarter, with 5.7% year-over-year growth in March the highest for six years, according to the CPB Netherlands Bureau for Economic Policy Analysis. But April data was weaker, and the shipping sector is suffering.

Trade acceleration is good news for investors, as more globalization means faster economic growth and more efficient use of productive assets and workers (who may not be so happy). The twin dangers for investors are that the recent recovery proves to be a mirage, or that Mr. Trump brings it to an end.

The global trade recovery might be less than it seems if it is merely a reflection of China's stimulus last year. Oxford Economics estimates that as much as 70% of the trade growth comes from the knock-on effects of Chinese demand, which few expect to last. As China put the monetary brakes on in recent months, the Baltic Dry index of shipping costs has tumbled, and the Dow Jones Global Shipping index shows the sector's stocks have fallen a tenth from this year's high. South Korea's trade volumes, used by many as a leading indicator of global trade, have fallen back after hitting a new high in March.

If Mr. Trump goes ahead with his steel tariffs, the bet is whether it leads to a creeping deglobalization with a steady ratcheting-up of trade restrictions, or a trade war.

The lesson of the 1930s is that trade wars hurt everyone, so my money would be on more subtle forms of retaliation. But politicians can best show they mean business by striking back publicly. In Europe, attacking Mr. Trump looks especially like a vote winner. Investors should be worrying a lot more about trade.

(END) Dow Jones Newswires

June 26, 2017 11:21 ET (15:21 GMT)