Fed Hikes, Not Trade War Talk, Should Concern Investors

Summary

  • Investors are hitting the sell button Tuesday.
  • Trump is making more headlines in the ongoing trade dispute with China.
  • That's a side story, however.
  • The real trouble that could trigger a correction is the Fed's increasingly hawkish stance.

Stocks are down significantly in Tuesday's trading, with all the major US indexes down at least half a percent as of this writing. The story grabbing the headlines is that the trade dispute between China and the US continues to escalate. The Trump administration is proposing much larger tariffs against Chinese goods than previously discussed, and the Senate passed an amendment to take away the provision that would have allowed ZTE Corp. (OTCPK:ZTCOY) to keep doing business in the states.

This led to a major decline in Asian shares, with the two major Chinese indexes down 3.8% and 5.8% in their trading session. The China A-Shares ETF (ASHR) is down 3.4% at the time I'm writing this. Bloomberg reported that as many as 1,000 Chinese equities traded down 10%+ during their trading session. Not surprisingly, that sort of selling rippled to other markets, including the US, for Tuesday's trading.

However, I don't see these tariffs as a big deal. SA author Alan Longbon put it well in his article Trump Trade War Is A Side Show:

Except for China, the impact on US allies from the trade war is relatively minor at between one and five percent of total trade between the nations.

The actions against Canada, Mexico, and the EU are more bluff and bluster than a real threat to overall trade and prosperity. Though, no doubt catastrophic for specific companies and sectors of the economy. At the macro level, the trade war impact on these countries is a pinprick.

On various occasions after Trump was elected, we heard stories of how the Mexican economy was going to plummet. Trump's fiery rhetoric was one thing, but tangible damage to Mexico specifically or Mexican-US trade relations more generally has been modest. It appeared that Mexico and the US were near an acceptable deal

This article was written by

Ian Bezek profile picture
21.03K Followers
Research and trade alerts from a hedge fund pro with a global outlook.

Ian worked for Kerrisdale, a New York activist hedge fund, for three years, before moving to Latin America to pursue entrepreneurial opportunities there. His Ian's Insider Corner service provides live chat, model portfolios, full access and updates to his "IMF" portfolio, along with a weekly newsletter which expands on these topics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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