No, there will be no trade war…don’t panic sell your investments
Markets all over the world area freaking out over the trade tariffs introduced by Trump.
American equity markets have been bleeding the last two days and they led both Asian and European boards remarkably lower.
All this came amidst the Facebook scandal (the counter fell by more than $20 from its peak) and a stock market rally that is making new highs for several months now.
In this environment, investors get very jittery. Every little news causes significant dips; North Korean hostility, unrelated scandals and anything that Trump says is enough reason to trigger a sell.
The $50 billion China tariff deal from Washington is no different. Markets have already been extremely turbulent and this news has caused sell-offs.
But why the over reaction? The trade deficit the U.S. has with China amounted to $375 billion in 2017. The United States sells only $130 billion to China while it imports some $506 billion from them.
The top 10 things that the U.S. exports to China are soybeans, semiconductors and aircraft parts. The later two are because of superior technology and the imposition of tariffs are unlikely to have an impact on sales. The same goes for passenger cars. The Chinese buy American brands not because they’re cheap, but quite the opposite.
Of course, one can fear that should China stop buying U.S. Treasury Notes, U.S. interest rates would rise and thus causing an economic chain reaction to hurt the country.
But this wouldn’t be in China’s best interests. An embattled U.S. would in turn hurt China – don’t forget, the Americans buy more from the Chinese.
Moreover…and this is important: what President Trump did was merely sign a memorandum to direct the U.S. Trade Representative to “consider” tariffs on Chinese imports.
What we see in the markets these few days, appear to be little more than panic selling. American equity markets are red hot and investors are being extra careful.
And for once, perhaps I may even agree with the actions of President Trump. With such a large deficit, it would do some good to American businesses by flexing some economic muscle. Sure, he is risking trade war, but it is a case of – if I can’t eat this cake…then I’ll make sure no one eats it at all.
It will not be in China’s interest to retaliate, but rather it would serve them good to come to the negotiating table and to consider American demands carefully.