Whoever thought this trade war was just a passing fad was caught wholly unprepared yesterday for the bloodbath that would ensue. With the rhetoric more vitriolic, the air more poisoned by threats of new tariffs and retaliation, the only thing natural for the market to do was to tumble. And tumble it did! The markets had not fallen so much in weeks. To aggravate matters, the Dow fell beneath its 200 moving average, a key metric used to gauge an index’s or stock’s momentum. Is the fall on the Dow a harbinger of tougher times to come?! The bloodbath struck all indexes yesterday, 9 of the 11 S&P 500 sectors ending lower. The tech-heavy NASDAQ plummeted 2.1%, marking its biggest percentage loss since April 6. Things were already looking bad – and yesterday, they seemed to only get worse.
What was the impetus? What was the catalyst that led to these sweeping losses? Ironically, when the market rose, Trump took full credit. Really no more than a large-scale wealth redistribution, moneys taken from social programs and re-directed to tax breaks for the wealthy, Trump touted it as renewed confidence in the economy, a more business-receptive environment, red tape slashed, the advent of a new era for the market. And now, he’s pushing another narrative; the market, he’s said, will suffer, but the American economy will come out all the stronger. Trade will be leveled, jobs won’t be gobbled up by China which unfairly subsidizes industries competing with America. It’s a “New Deal;” the question is, “Is the world buying it?” While Trump has framed himself as the master dealmaker, perhaps more than anything the reason he was chosen as the Executive in Chief, now the American worker, manufacturer, and foreign counterparts are coming to realize that they are the pawns in this deal-making bonanza.
One aspect that did sink in yesterday was that the trade war is here to stay. If Goldman Sachs has come out and said that upping the ante in a trade war simply doesn’t work, Trump is certainly of a different breed. Yesterday, the market reacted to his tweet sent late Monday night: “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!” The NASDAQ, as noted, was hardest hit yesterday after Trump threatened to ban Chinese companies from investing in American tech companies, essentially, engaging in an increasingly protectionist policy, painting technology as an avenue for China to sabotage America. Come the end of the week, expectations have Trump restricting Chinese investments in U.S. tech firms, while also curtailing exports to Beijing. Like always, Trump has threatened retaliation to the retaliation; should China or Europe dare to strike back, America, claims Trump, will make them feel the pain all the more.
That being the case, the only light at the end of the tunnel is the world overcoming this impasse, one that’s become increasingly difficulty to surmount given the geopolitics at play. Trump’s America-centric approach has been pitted against Merkel’s liberal universalism with China, seeing to strengthen its one-belt domination, pitting the two sides of the Atlantic against each other. Russia has also jumped into the fray, meaning that in a sense we have a World War, but on an economic level, one that could redefine global trading dynamics, and the pain could be felt. The comparison may see extreme but countries are forming alliances against the U.S., every matter here being interrelated. America, for example, cancelled its nuclear deal with Iran; now, one of the tools China has in its trade war with America is importing Iranian, instead of American oil. And from America’s vantage point, other things are backfiring; given high import tariffs on Chinese, Russian, European and Canadian metals needed for the production process – and high export tariffs when finished motorcycles are sent across the Atlantic, Harley Davidson is looking to move some production to European factories to avoid the taxes on both fronts and thereby preserve market share. In other words, Americans will lose jobs, point blank, no questions asked. Other Americans, those who produce steel and aluminum will benefit, but it’s really a matter of debate whether the gains accrued by one are offset by the losses suffered by the other. Concisely put, where Trump once boasted that trade wars are easy to win, that might be easier said than done, leaving traders and investors alike to wonder whether the time has come to jump ship, to flee until the havoc is over.
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