Trump’s success of becoming the US President has to be connected to his campaign slogan of “Make America Great Again”. While this slogan has been the most controversy among the voters and as well as all foreign countries. Fearful as it was, thinking if Trump elected to be the next US President, the world will be lead into national protectionism.
Trump has made it clear that US has been unfairly treated in all global trade treaties. He specifically named a few countries in his campaign. Mexico and China has been on the top of his list of attack for unfair trade practices. Now it has been on this second year as US President, Trump’s move into trade dispute with China and nearby foreign countries, such as Canada and Mexico has been more concrete recently.
The proposal to raise import tax rate with these countries’ products recently has caused more market tremors and uncertainties like never has been before. However, It seems that Trump is winning his “trade war” fight with the European counterparts and the nearby countries through NAFTA treaty easily. The latest round of fight right now is between the US and China. On the surface, it looks like China is giving in through some official speeches in some key international occasions. But China, possibly out of Chinese pride, said it would not hesitate to retaliate if Trump proposes another tax hike for the 100 billion worth of import from China.
Entering Trade War Era
For us as investors, we have to be clear that these are merely words of war, rather than a real trade war. Top officials from the Trump side did emphasize that it is not their intention to start a trade war. We have to take the assurance that there is no such trade war until they passed their policy signing into implementation. They are giving such double signals to the general public, intending to assure us that what they are doing is just a negotiating tactics. But such a high risk, hard sell stance negotiating tactics make the world nervous and uncomfortable. The world markets tumbled every time there is a negative or unexpected move by either side.
China reaction has been more restrained and self-control to avoid deterioration of the relationship. Throughout all these trade negotiating tactic that Trump was trying to tackle, US market indexes have become more bearishly incline, except the Nasdaq. It would have to take strong and solid corporate earnings reports right now in these few weeks to bring market indexes back to where it was before market correction.
With the corporate tax cut in operation starting from February this year, corporate earnings are all expected to be strong and high.
If Trump is so concerned with the market reaction towards his political move, he would possibly delay his announcement for the 100 billion tax hike for China products after earning seasons are all over. Corporate earnings this season is expected to push market indexes to higher ground. But then, market would most probably not react at all if Trump proposes new tax hike for Chinese products. Because markets have prepared enough for its coming. Markets are always unpredictable.
Long Term View for Trade War Struggle
What investors have to take notice at this moment is the development between these 2 global economic giants. We have to look beyond the surface of trade imbalances. It is indeed a struggle of global dominance for economic power and military power.
Trump’s slogan “Make America Great Again” has never stick to foreigners’ mind. As an outsider, we have never felt US in anyway lesser or inferior than any countries in the world. In fact, after the old war period, that is after former Soviet Union broke up, relationship between China and US has been strengthened, foreign relationship between the three previously estranged relationships has never been that good throughout human history.
US right now is the only super power in the world. It can invade any country it deems hostile or dangerous (justifiable if it wants to). Just like the way it invaded Iraq previously, the world was just helpless and powerless to react in anyway.
Even at the end of the war until today, their invading intention has never been proven justifiable.
What would justify for the greatness of America then? What made US voters buy into his campaign promises? What made it so appealing?
Main Concern Behind Trade War Motive
It is none other than the subtle economic advantage taking over by China, a rising star of global super power. This is the major concern for the US counterpart. That’s the reason why the issue of intellectual property theft is a major accusation Trump has been saying out loud against China currently. Even “American dream” slogan has been copied and become “China dream” now.
Will China ever over taking the US as economic super power in any near future? Quite a number of statistics such as PPP index (purchasing power parity) of China has already overtaken the US economy. But this can be highly debatable to many economists or professional, particularly from the West. Many western intellectual will cast their doubts on this aspect. The Chinese leaders, being wisely and humbly put it, have once denial this possibility of overtaking US in any time sooner. Their wise response is more or less tactful to calm the US nerves.
Nevertheless, for reality sake, Trump wants to slow down the process as much as possible if ever there is any possibility. The trade imbalances said it all for Trump as a businessman. Whether he will be successful to stop the overtaking process, only time can tell.
As a reason, current trade dispute is only a minor issue, there will be a lot more of other things, like geographic economic invasion emerge on Trump’s agenda later on. However, back fire and shift of global economic relationship dependence would possibly happen if Trump continues to pursue his agenda defiling free trade agreement made with multiple countries and regions in the past. China, on the other hand out rightly, taking advantage of the situation, propagates or maintains free trade globally. Obviously China has already taken an upper hand in global trade favor and making many inroads to many countries and regions.
Starting from the next global recession and economic cycle, a card shuffling will probably happen. Which country will emerge to be the global economic super power for the next decade, we shall then have our time to see.
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