Stock Market Vulnerable: Experts Say Trade War Threat Remains High
Posted By | April 13, 2018
China’s president made nice after the levying of recent U.S. tariffs. Can we relax our investment posture and not worry about whether our IRAs and 401(k)s are protected from the effects of a possible trade war between the U.S. and China?
In a word, “No.”
After weeks of tough talk and back-and-forth tariff threats between Washington and Beijing – activity that prompted the already-slumping equities markets to drop another four percent – something odd happened: Chinese President Xi Jinping delivered a speech on April 9 in which he seemed to do an about-face on the hardline position his country had said just days earlier it would take toward U.S. protectionist efforts.
Xi expressed a very surprising tone of cooperation and even conciliation, saying he would work to make China a more open marketplace. He specifically identified as priorities the lowering of tariffs on auto imports from the U.S., ensuring greater enforcement of protections on intellectual property rights (a particularly sore point with many U.S. officials), and making China’s financial markets more transparent and accessible.
The next day, Tuesday, April 10, U.S. equities markets soared. The Dow Jones Industrial Average climbed 429 points. To many observers, the threat of a trade war was now suddenly in America’s rearview mirror, and investors breathed a sigh of relief.
Nothing New on Chinese Industrial Policy in President Xi’s Speech
Contrary to the positive spin some were putting on the Chinese president’s tone, in an article posted to CNBC.com in the latter part of the April 10 trading day, it was suggested by some geopolitical analysts that folks may have, in fact, been hoodwinked by Xi’s speech…and that the prospects of a trade war are anything but dead.
One of those analysts, Scott Kennedy of the Center for Strategic and International Studies, said flatly, “There was nothing new in that speech. ...What was included was incremental steps to expand market access.” Kennedy added that “I think [Beijing’s] impression is the Trump administration can be bought off with some market adjustments in China without constraining Chinese industrial policy.”
Another pair of analysts, Evan Medeiros and Michael Hirson of Eurasia Group, a political risk consultancy, had this to say:
“Xi proposed actions which were previously promised and none address the reciprocity issues in U.S.-China relations. We assess that nothing in the speech will deter the U.S. from moving forward with tariffs.”
In other words, if you listen carefully to what Xi said, note what Beijing has said and done before, and see where we are today, there’s no sound basis for believing significant trade problems with China are now a thing of the past, including the threat of a trade war.
The Costs of a Trade War and What to Do About It
I have written previously about the potential cost of a trade war to U.S. equities investors, and the fact that some very intelligent investment minds have projected stock market losses up to 40 percent as a result of overt trade conflict. If you haven’t prepared, now’s the time – there’s no excuse to get blindsided by any steep market correction that may be coming.
If you’d like assistance in getting ready to face this financial challenge and learn more about how inflation-protected assets such as physical gold and silver can help keep your portfolio safe, give Augusta Precious Metals a call at 855-242-4121.
Threats of a trade war aside, there’s a growing number of factors poised to crush the markets. Plus, stocks simply are due for a fall after this second-longest bull run in history. As the astute investor can see, the possibility of a trade war is something that most certainly cannot be discounted, and it should remain high on your list of possible lurking crash triggers.
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