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"War" with China Not Looking So Good for the Markets

The trade war is escalating with a war of words today. President Trump is making all types of threats through his twitter account. Meanwhile, China is very calmly stating the positive and the negative signaling that the threats won't work nor will they give into them.


We are about to see something significant play out here. Either the hard nose/combative style of negotiating actually does work or we are about to enter into a very long game of Russian roulette with China.


Here are some of the quotes from the China media this morning:


Front-page editorial in People’s Daily says Beijing wants to settle its differences with the US, but warns it will not change its system and can weather a lengthy stand-off. Article states: “The US cannot control China, and it is even less likely that it can deter China’s development.”


“At present, US policymakers have placed a big bet to ‘fight’, allowing immediate benefits to cloud their long-term perception."


“At no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests.” 


Meanwhile, Trump claims that tariffs are a good thing for the US. He claimed that 100 billion was flowing to the US treasury because of the tariffs. A CNBC article refutes that claim by stating that the numbers just don't up. Besides these tariffs will more than likely will get passed onto the consumer as higher prices. Once again no one wins in a trade war.


Also, remember the last big trade war, the Smoot Hawley Act, looked as if the US would benefit from the increase in Tariffs. That quickly changed. Once again, how Trump handles this situation will be a defining moment on his Presidency. My biggest concern is that he is starting to look like he is at a disadvantage. Between making claims that this is the greatest economy and unemployment situation in history (the numbers don't support these claims), to threatening a country with deeply rooted pride, it looks like emotion is starting to take over versus solid leadership. If he pulls this off, he should get the credit he deserves. If he doesn't, he is going to take the ship down with him. In retrospect, it might have been a better fight to pick given a successful re-election.


He does have two disadvantages that are apparent as he does his best to spin this situation as an advantage to the US. He has an election cycle staring him in the face and his crown jewel, the stock market, looks very vulnerable. A trade war has clear negatives for the economy as well as the stock market.