Trade wars make for volatile times
The Trump presidency has seen a rapid return to protectionism with the introduction of new tariffs on Chinese goods aimed at lowering net imports and protecting domestic industries. China responded with its own tariffs targeting key US exports. While China may have more to lose, the escalating trade war is adding to global economic uncertainty. The first round of tariffs on Chinese imports applied primarily to raw materials and manufacturing components, hitting business confidence first. But US consumers are likely to feel the next round at the checkout, increasing the risk of an economic downturn in the lead-up to next year’s presidential election.
Shots fired by both sides in the trade warThis information is accurate as of 17th October 2019 |
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| USA | CHINA | |
| August 2018 |
Tariffs on steel (25%) and aluminium (10%) exports $16 billion in tariffs (25%) on machinery |
Tariffs on aluminium, pork, fruits and other goods $16 billion in tariffs on fuel, steel products, |
| September 2018 | $200 billion in tariffs (10%*) on furniture, appliances and other goods *To be raised to 30% in October 2019 |
$60 billion in tariffs (10%) on agricultural goods and food products |
| Sept and December 2019 | $300 billion in tariffs (15%) on consumer goods like smartphones and clothing |
$75 billion in tariffs (5-25%) on cars, auto parts and soy beans |
| October 2019 |
On 11th October 2019, China and the United States reached a tentative agreement for the first phase of a trade deal, with China agreeing to buy up to $50 billion in American farm products, and to accept more American financial services in their market. In turn, the United States agreed to suspend new tariffs scheduled for 15th October 2019. |
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Share markets have so far proven resilient after bouncing back from initial shocks, but ongoing volatility is expected as markets try to make sense of the outlook for a long-term resolution. Trump’s off-the-cuff tweets only add to the confusion, fuelling short-term uncertainty while delaying meaningful, long-term business investment which could prolong any resulting downturn.
As of now, there is no clarity over the upcoming phase of tariffs that were scheduled for December. China had sought a time-bound phasing out of all tariffs, which was not accepted by the US. Until the "handshake agreement" is formally signed, global markets are bracing for a protracted battle between the US and China for economic supremacy.
During volatile times like these, it's important to make rational decisions without getting swept up in the day's headlines. Against this backdrop the FMD Investment Committee is meeting regularly to review our investment portfolios and ensure our clients are well positioned to protect against a range of global and market risks. There will be winners and losers as a result of the trade war, but well managed, diverse investment portfolios remain the best option for long-term investors.
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