Here is my quick update on the current standoff between the President of the United States (POTUS) and his Chinese counterpart - President Xi Jinping.  Recently we saw a shift in trade relations between Mr. Trump (but it is more fun to call him POTUS) and China on May 10^th when the U.S. raised tariffs on $200 billion of Chinese imports to 25%, from the previous 10%.  POTUS also threatened a new 25% tariff on an additional $325 billion in Chinese goods, targeting various products from clothes to electronics.

Not to be outdone, on the morning of Monday May 13^th, China upped the ante by announcing that they will raise tariffs on $60 billion in U.S. goods in retaliation.

The recent impasse in trade will no doubt continue to move markets, with the S&P 500 down about 3% from so far in May (but it is still up 14% from the start of 2019).

The larger question concerning the re-emergence of economic uncertainty related to the China/U.S. trade-war signals a breather in the market – like we have seen several times during this cycle. While stock valuations have been under some pressure in the short and medium term, we do not believe that the current state of the trade-war will cause a prolonged selling in the stock market - or bring about a U.S. recession.

Although negotiations between the U.S. and China ended on May 10^th, both leaders will be in Osaka Japan for the G-20 Summit, on June 28^th and 29^th, where we hope to see some progress made on trade negotiations.   

I believe that both countries’ best long-term interest is to reach an agreement quickly as both sides will likely lose in a trade-war. My calculations show China losing more given their greater reliance on trade. U.S. exports to China account for less than 1% of U.S. GDP, and U.S. imports from China are roughly 2.6% of Chinese GDP.

For now, we expect a little more short term “trade war turbulence” for the stock market as both sides attract new headlines and jockey for position ahead of the G-20 Summit. 

                                                                                                                                                Brad      

 

 

 

 

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