Trade War With China Escalates to a Dangerous New Level

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Photograph Courtesy of Business Insider

This last week and over the weekend, it became clear that U.S. President Trump was not engaging in the “art of the bluff” when he increased duties on a wide assortment of Chinese goods worth $200 billion to as much as 25 percent. As promised, the Chinese retaliated by promising to increase tariffs on American goods worth $60 billion, per their Finance Ministry on Monday. This will include tariffs going up on over 5,000 individual American made products to from 20 percent to 25 percent (from their previous five percent to ten percent levels).

U.S. market reactions were swift and painful. The U.S. stock indices plunged an eye-watering two percent (for 600 big points) from the time of the announcement of retaliation to the market close as the ongoing trade war between the planet's two biggest economies gets going in earnest. Your retirement and investment portfolios are now in danger. It explains why gold makes sense in an IRA. Now is the time to look into some IRA-approved precious metals as in the Top five gold coins for investors before the market and economic fallout gets any worse.

Trade War Rolls On As U.S. Makes Good on Tariff Threat and China Retaliates Back In Kind

It appears that it was as much of a mistake to doubt the resolve of the Chinese as it was to not believe in that of President Trump. So far, the two largest global economies can not come to terms on a trade deal that would conclude the widening trade rift that now threatens to take down the entire world economy. This latest shot and counter fire has really rattled stock markets, and not just in the U.S. either.

On the American side, the people suffering most from the expanding trade dispute are core supporters of the president's— the American farmers. Among the thousands of U.S. products which the Chinese are targeting wholesale are wheat, sugar, peanuts, turkey, and chicken. Neither the Treasury Department nor the White House were willing to comment on the issue of the tariff increases.

Up until the weekend, observers and investors had harbored misguided but high hopes that a wide-ranging trade deal between China and the U.S. was imminent to be unveiled and signed. By Friday, it became clear this was hearsay, as both Washington and Beijing walked away from significant portions of the so-called developing trade arrangement. Both sides met last week as U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin sat down with the Chinese negotiating team.

Mnuchin had even called the talks “constructive,” yet they were not sufficient to etch out a deal. This graphic below shows the very real impact that the trade war with China is already having and will continue to have as a result of the latest round of tariff increases on both sides:

Clearly things are moving in the wrong direction for reaching an imminent resolution to the growing conflict.

Trump Mocks and Threatens Chinese President Xi

President Trump is busy trying to fix longstanding U.S. complaints against China including forced technology transfers, intellectual property theft, and trade deficits. He pressed the Chinese severely to cut a trade deal before the retaliation that he unveiled on Monday. Yet the Chinese were not willing to agree to all necessary tenets.

When President Trump did weigh in publicly on the issue, he was full of scorn for the Chinese President Xi Jinping. His over the weekend tweets quickly became humiliating to the Chinese side and President Xi:

“I say openly to President Xi and all of my many friends in China that China will be hurt very badly if you don't make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, and you backed out! China should not retaliate as it will only get worse!”

It is now hard to see how the Chinese can pull back in the near future without losing face at the expense of President Trump.

U.S. Has Still More Retaliation To Hit Back With

This is not the last of the trade war ramping up from the U.S. side either, as President Trump indicated. Trump is fulfilling a major campaign pledge to resolve Chinese trade abuses. This has become a major priority ahead of the reelection campaign for November 2020. The White House will resolve these grievances against the Chinese or take the global economy if the Chinese do not cave in on the three key issues.

Trump's next retaliation will include 25 percent tariffs erected on yet another $325 billion in Chinese products that are still not being taxed. The president has demonstrated that he will leave the duties up as long as necessary, confident that they will harm the Chinese economically far more than the United States. While Trump continues to claim that the Chinese are suffering the worst of the trade war though, the burden will continue to fall on U.S. consumers and businesses that are paying the higher prices in stores.

In a Sunday Fox News channel interview on Americans being the ones to pay the tariffs, the White House Chief Economic Adviser Larry Kudlow admitted that it is “Fair enough. In fact, both sides will pay.” Yet on Monday, President Trump tweeted his belief that “there is no reason for the U.S. consumer to pay the tariffs. They can be completed avoided if you buy from a non-tariffed country, or you buy the product inside the USA (the best idea).”

As far as any hope of an upcoming breakthrough, it appears that this will have to wait until next month at the earliest. Kudlow hinted that a “strong possibility” exists that the president will meet with Xi on the sidelines of the upcoming G-20 annual summit to be held in June in Japan.

International Victims to Watch Out For In the All Out Trade War

Bank of America (Merrill Lynch) now estimates that the S&P 500 benchmark index may fall five percent if the promised brinkmanship continues and causes volatility to remain elevated for an extended period of time. Delayed investment is the indirect yet powerful damage being done, which is worse than shorter term earnings' impacts, according to BOAML. Should there be the president's promised additional retaliation on the remaining $325 billion in Chinese goods, the S&P could fall even 10 percent, they warned. Chief Investment Officer Mark Haefele of UBS Global Wealth Management believes that yet another round of tariffs and failed talks will lead to an over 10 percent drop from present stock market levels.

Obviously the American stock markets are a first line victim of the expanding and worsening trade war. Yet they are far from the only such one. The equity markets in Europe suffer from greater still exposure to external trade and markets. Bank of America feels the Euro Stoxx 50 could decline more than three percent from present levels and fall even 11 percent given a no-deal trade scenario. Germany is particularly vulnerable to a large value decline, Strategist Nick Nelson of UBS Group warned recently in a note. Italian sovereign bond securities are also in danger of a damaging, even game-changing sell off.

China's markets will continue to be threatened as well. Morgan Stanley warns that the Hang Seng Index could fall initially three percent as the Shanghai Shenzhen CSI 300 Index plunges around eight percent. Other markets are vulnerable as well. Riskier debt like that of Argentina, Indonesia, and Ukraine could be hit hardest by the ripples of the trade war, per Vanguard Asset Management.

Your portfolio should not be at the mercy of the seemingly never-ending trade war. You can hedge your retirement portfolio by pursuing a Gold IRA rollover now. It is easy to add gold in monthly installments to your account. Just make sure to only buy your bullion from top gold IRA companies and bullion dealers.

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David Crowder
W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.
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