A trade war between the U.S. and China is brewing and could be the biggest risk for global investors, a prominent asset manager told CNBC.
"We may be brewing up for a trade war because of the mistaken way that many policymakers interpret the trade issues. I don't believe that the U.S. trade deficit is as big a problem as many say," said Jim McCaughan, CEO of Principal Global Investors, to CNBC Tuesday.
President Donald Trump has repeatedly voiced his concerns about his country's trade deficits with several countries including China, and his administration is attempting to open up China's economy to U.S. companies.
Since the president's inauguration there have been fears a trade war may begin between the two countries, which would involve the introduction of tariffs and quotas on imports. Trump's Commerce Secretary Wilbur Ross has previously said the president will take "bold action" to address Chinese steel imports entering the market.
McCaughan says this kind of tough talk appeals to the president's base, but he added that Trump would "blame someone else" in the event of a trade war and any negative consequences.