McGeever@ (The opinions expressed here are those of the author, a columnist for Reuters.)
LONDON, March 21 (Reuters) - For the first time in over a year, a global trade war is the biggest "tail risk" for investors. And given the increasingly fragile environment for financial markets, their worries may be justified.
Bank of America Merrill Lynch's monthly poll of global fund managers showed that 30 percent of those surveyed cited this as the biggest single risk to markets right now, ahead of inflation (23 pct), slowing global growth (16 pct) and a policy mistake from the Fed or ECB (14 pct).
Trade and protectionism last topped the list of BAML fund managers' worries in January 2017, when President Trump took office. A central plank of his "America First" platform was tearing up "bad" trade deals and taking unilateral steps to boost U.S. exports.
The difficulty in predicting exactly when, where and how escalating global trade tensions might hit markets means that, aside from a few stock- or sector-specific rumbles, the tremors have so far been micro rather than macro.
Shares in U.S. plane maker Boeing fell 4 percent last week after Trump slapped import tariffs of 25 percent on steel and 10 percent on aluminium. Investors also fear Trump's pledge to impose tariffs on up to $60 billion of Chinese imports could rapidly escalate tensions.
Friday, March 16 was the second busiest trading day for Boeing shares in five years, and last week's 4 percent fall was the biggest weekly decline in two years. They're on course for an even bigger fall this week.
But the spillover has been minimal. Equities wobbled on Wednesday on a Wall Street Journal report that China will take retaliatory measures against U.S. tariffs, and yes, asset markets are under more pressure in recent weeks.
But other factors like valuations, the Facebook-led weakness in tech, signs of slowing economic growth, lingering nervousness following the burst of market volatility last month and tighter U.S. monetary policy are all at play.
Trade war fears have had little impact, if any, on major currency, bond and credit markets. So far this month the dollar is up 1 percent, the 10-year U.S. Treasury yield is up two basis points and the U.S. yield curve has flattened only five bps.
That relative calm may not last, according to Stephen Roach, an economist and senior lecturer at Yale University with extensive experience in Asia and China in particular.
There's no magic bell that suddenly rings for markets, and the economic impact from trade disputes can take months or years to be felt. But investors are too complacent about the rising tide of protectionism, and an all-out trade war cannot be ruled out, Roach argues.
"There's still a lot of denial over the likelihood of such a draconian possibility. We're in a very frothy market environment right now," Roach said. "There's a lot of excess complacency and excess optimism that's going to be tested this year."
As the steel and aluminium tariffs, and looming measures targeting Chinese technology, telecommunications and intellectual property show, the Trump administration is putting its protectionist rhetoric into action.
The United States has been by far the most protectionist country since the global financial crisis, according to Global Trade Alert, which monitors state interventions. Trump is taking that further.
Global Trade Alert calculates that the United States made 143 "harmful" interventions in 2017, Trump's first full year in office, an increase of 27 percent on the year before. So far this year it has implemented 42 "harmful" measures, almost as many as the next nine countries combined.
Global financial leaders spent two days talking trade and protectionism at a meeting of the G20 in Buenos Aires this week, but failed to defuse the threat of a U.S.-led trade war. The talks were described by participants as "polite" and they agreed that more "dialogue and actions" was needed.
But that was it. Global trade tensions look sure to intensify this year, and vulnerable markets could take fright at any time.
*UPDATE 3-G20 sees need for 'dialogue,' fails to defuse trade war threat
(Reporting by Jamie McGeever Editing by Richard Balmforth)