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Will Trump's trade testosterone tactics topple markets?

Peter Switzer
4 September 2018

In case you have more important issues in your life to monitor, I thought it timely to update you on the Trump tariffs and trade war matters and whether you should brace yourself for a period of fear and anxiety, if stock markets slump, if and when Donald decides it’s time to declare war on $200 billion worth of Chinese goods.

The key day is this Thursday September 6, when the period of public comment on the idea will conclude. Then it’s in the hands of the President how he takes his next steps. It could be one big down-payment for the Chinese to wear, or it could be delivered in instalments.

Analysts on the subject seem to think it will happen, in some shape or form. However, it looks like the stock market in the USA is taking it in all in its stride, believing the strength of the economic and company profit recovery will offset any negatives from China’s return fire, or else the major drivers of Wall Street think this will end up being a Trump bluff play.

Let’s face it, his form of political negotiations, which do look like bluff poker, has secured a trade deal from the EU, the Mexicans and maybe the Canadians, despite some insulting comments from the President about how little he was giving in concessions to his northern neighbours.

In two out of the three cases, the trade war threat didn’t get serious and one suspects a Canadian border battle will be averted. But the Chinese encounter is the one that the world is more anxious about. And no one can confidently calculate the consequences of this possible trade war because no one knows how China will respond.

They can’t slam tariffs on $US200 billion worth of US goods/exports going into China because they only receive about $US128 billion of exports. But I can’t believe that the Chinese are going to easily accept Donald Trump’s strong arm tactics without a fairly decent return fire. And this uncertain and unseeable counterpunch could be the kick-in-the-pants to Donald that will be felt by his buddies on Wall Street.

In a discussion on Sky Business’s Final Count yesterday, one of the panellists argued that Wall Street has factored in the certainty of these $US200 billion tariffs becoming a reality. He didn’t expect a big, negative response but I questioned his analysis and so do others.

“China is more prepared, mentally, this time than it was for the previous round of tariffs,” said Gai Xinzhe, an analyst at the Bank of China’s Institute of International Finance in Beijing. “The scale is enormous and once the tariffs materialize, they will definitely send jitters through financial markets.” (Bloomberg)

Right now, the US has $US50 billion worth of Chinese goods with tariffs on them, which the Chinese returned fire on. At this stage, we’re led to believe that China is looking at hitting $US60 billion worth of tariffs on US goods, if the $US200 billion nuclear bomb is dropped on Thursday. But that’s assuming that’s all China has planned as a response.

And that’s the hard part for stock markets: we just don’t know what lies ahead. This is when places like Wall Street can overreact and spread fear and loathing around world stock markets like wild fire!

But it’s not just trade issues, as the President has linked some of his China negotiations to his claim that China is pressuring North Korea not to give in to Mr Trump’s demands on giving up its nuclear capability.

And to keep it as confusing as Donald can make it, he’s recently tweeted: “As for the US-China trade disputes, and other differences, they will be resolved in time by President Trump and China’s great President Xi Jinping. Their relationship and bond remain very strong.”

Yep, Donald tweets about himself in the third person!

And while this sounds positive for anyone not wanting a stock market routing because of a trade war, you can’t rule out the fact that much of this tariff stuff is linked to the November mid-term elections.

This all comes with the latest poll conducted for The Washington Post and ABC News showing that the President had a disapproval rating of 60%. However that’s not all, because he is getting traction with his economic plays with his beloved Americans. Politico.com tells us: “But when it comes to the economy, Americans were more favourable in their evaluations of the president. Forty-five percent of those polled said they approve of Trump's handling of the economy, while 47 percent said they disapprove.”

This makes me think if the Chinese don’t play a soft ball game, we could be in for some real fireworks on the stock market in coming weeks. And this expert view adds to my growing anxiety: “I think we are in for a prolonged period of continuing escalating tensions,” said Deborah Elms, the executive director at the Asian Trade Centre, which is based in Singapore. “One problem is that both sides think they have the upper hand in this debate.” (CNBC)Trump versus Xi Jinping in a trade testosterone battle doesn’t excite me one little bit!

One last thing

The Switzer Listed Investment Conference is back! Next week we’ve brought together a collection of Australia’s best money managers to find out how they’re investing and where they see value in the current global environment. As a reward for reading my column today, you can access a complimentary ticket (or two!) to come join us. There’s only one week remaining – so make sure you don’t miss out! To access your free ticket/s, click here, choose the event you’d like to attend in your State and enter the promotional code ‘SD’ on checkout. I hope to meet you there so come up and say “hello”.

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