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Quick Thoughts On The Stock Market Impact Of The Trade War

David Ruggles profile picture
David Ruggles

By Mike Smitka

What are the market implications? Below are quick thoughts. I will refine this initial and very tentative analysis over the next month. Above all, I need to add detail on the investment implications.

There can be little doubt that we are moving to higher and higher tariffs against China; the must-be top-of-the-news mindset of President Trump makes it very hard for those on the other side to defuse things, much less back down. Trump may be riveted on the stock market, and think that swings in Chinese equity prices drive politicians there. He apparently has never heard that all politics are local, and that the Chinese leadership can scarce be seen to "cave in" to a foreign power. Will the war spread? That depends on whether the Administration lashes out in the face of a global trade deficit that is more likely to grow that to shrink. That's thanks to their own actions, the fiscal stimulus packaged passed by Congress earlier this year with Presidential support. Demand will increase, even if not by much, and that will require more (net) imports. After all, few Americans remain unemployed, so factories can't expand and we won't see much uptick in domestic output. Goods (and services) will have to come from somewhere, which means reduced exports and increased imports.

Complementing that demand-and-supply story are higher domestic interest rates. Thanks in part to a growing Federal deficit amidst a strong economy, Treasuries are more attractive to global investors, and to get those they have to buy dollars. The White House will talk of a Chinese currency war, but the dollar is stronger across the board - Canada, Europe and Japan, along with most of our other trading partners. This will offset some of the pocketbook impact of trade, keeping imports high, while the strong dollar and the higher cost of intermediate goods such

This article was written by

David Ruggles profile picture
Mike Smitka has followed the industry (and the Japanese and Chinese economies) for 30+ years. David Ruggles has worked in every phase of the retail side: new and used, sales and management, lease financing and consulting in both US and Japan.

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Comments (2)

panzer profile picture
Trump is ordering china to change their entire 35 year history of dealing with the West. 'no more stealing gentlemen."
petektf profile picture
They ran out of real wars, so now they make a virtual trade war, whatever excuse they can think of to crash the markets I guess, people usually fall for the dumbest explanations for historical events anyways.

No one can still sit there with a straight face and tell you the real reasons why the markets crashed before. You hear all kinds of things, but it's never consistent.
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