Displaying items by tag: China
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.
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.
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.
Markets have been on edge for weeks, and it appears with good reason. President Trump is reportedly putting the finishing touches on a major trade tariff package that is directed at China (to the tune of $50 bn). The focus of the tariffs are on metals. In response, China is planning its own set of tariffs on US agricultural exports, especially from Farm Belt states.
FINSUM: So the US is negotiating exemptions with top allies, but is starting a trade war with China a good idea? The politically difficult aspect for Trump is that China’s retaliation against US agricultural exports will hurt the states that helped elect the president.
President Trump has just sent a strong message to overseas investors: that US tech is not for sale. The president rejected Broadcom’s hostile takeover of Qualcomm. Although Broadcom is based in Singapore, the prospect of China, which loomed over the deal, was enough to get the White House to block the hostile takeover. American Qualcomm is in a heated race with overseas rivals, including Huawei, to build next-generation wireless technologies, and the US is warned about its strategic interests.
FINSUM: The US is right to worry about this, and we think blocking the deal was a great move. China runs its companies like China Inc., which puts the US at a bit of a structural disadvantage (because our firms don’t share as much info). Therefore, Washington needs to be very careful.