Displaying items by tag: trade war

(New York)

For anyone who thinks a trade war might not hurt the US economy, or that one may be easy to win, this is an important story. Robert Shiller, famed economist, just said a trade war with China would cause quick and devastating damage to the US economy. “It’s just chaos … The immediate thing will be an economic crisis because these enterprises are built on long-term planning, they’ve developed a skilled workforce and ways of doing things”. Shiller says that even if tariffs don’t directly affect the economy, many companies will lose their confidence to plan and invest. “It’s exactly those ‘wait and see’ attitudes that cause a recession”, says Shiller.

FINSUM: So we imagine that a trade war would be very disruptive and would undermine the confidence of US companies as it would destabilize the ground on which industry has been built for the last 25+ years. However, the US has put itself at the raw end of trade deals for many years and claiming some ground back may be positive in the long-term.

(Beijing)

Well the market took a big sigh of relief yesterday, with prices swinging back massively. One of the big reasons why was less fear over a possible trade war. In particular, China took a much more conciliatory approach this week. The country announced it would ease foreign investment rules and buy more American semiconductors, a stark move that contrasts the American push towards big tariffs on Chinese imports to the US.

FINSUM: The bottom line in the US tussle with China over tariffs is that the US has a $375 bn trade deficit to Beijing, which means we have much less to lose than them. This is probably the reason Trump referred to trade wars as easy to win.

(New York)

The Dow has not been doing so well lately. Last week it dropped to its lowest level of the year, declining further than in its worst bout of volatility in February. The reasons why are becoming harder to explain with every day of losses. While isolated flare ups used to be explained away, the situation is growing more complicated for investors. A growing risk of tech regulation, a looming trade war, higher interest rates—all are weighing on stocks. That makes the markets much more complicated and hazardous for investors, and it has become commensurately harder to make good decisions.

FINSUM: The market seems to be in a very treacherous period. Its failure to regain momentum after the fall in February seems ominous to us, and we do not see a clear end in sight.

(Beijing)

President Trump is set to unveil a package of trade tariffs on $60 bn worth of Chinese goods. Unsurprisingly, the Chinese are preparing their retaliation, focused on US agricultural exports. However, the very interesting part is the retaliatory package will only be on $3 bn of US imports to China, much smaller than the US package. The new Chinese tariffs will be on items ranging from fruit to pork to recycled metals. One US adviser commented “All the products on the list are small potatoes, and the real important ones are U.S. farm products like soybeans and sorghum”.

FINSUM: So why is the Chinese measure so much smaller? In our view it means that they are either afraid to seriously anger the US, or that they need our imports much more than we realize. Interesting development.

(New York)

So the stock market is just about back where it was a month and a half ago at the bottom of its correction. This time the flare up has been driven by worries over a looming trade war being set off by the US and China. However, this recent rise in volatility has given insight into which stocks appear to be winners if a trade war does ensue. The answer is stocks that act like bonds, or yield stocks (alongside Treasuries and gold, the old safe haven standbys). Utilities and REITs have performed well, as have tobacco stocks, given that all three have strong yields to offer.

FINSUM: It is funny that just a few weeks ago everyone was worried about a bond bear market, and now everyone is pouring into fixed income and yield stocks.