Trade War for Real

Trade War 2Interestingly, while Sino-US were having trade war threat with rhetoric back and forth like two childish kids having words of fight, Nasdaq continued to create new historical heights in the week just past. It reflects as if there were people in the US who do not believe that the trade war is really serious. Or maybe they believe US is going to abstain from the any consequences even if the trade war really hit out. Just like what Commerce Secretary Wilbur Ross and Peter Navarro, economic advisers said that China is the one to lose if a trade war breaks out with the US. And US will emerge unscathed. This stand is conventionally understood as childish and foolishly wishful.

First of all, current trade war is not just a rhetoric war of words. It has actually begun since Trump announced the implementation of import tariff of steel and aluminum with US closest allies such as European Union, Canada and Mexico since June 1st 2018.  Leaving China alone, other US trading partners, such as European countries, Canada, Mexico, even as far as India, Russia and others, have also laid out their own retaliation measures with specific dates. The trade war is for real from now on. When the pride of a superpower from the US comes in, there seems to be no return.

Consequences of Trade War

However, US is now started to feel the slight pain of its own “work of art.”  Steel price  in the country is getting unexpectedly rising.  This is just the beginning of the pain, a self-created reciprocate consequences where probably Trump and his team didn’t expect this. There will possibly be more inflation for US consumer products to come especially after Trump has already implemented tariff hike for other items from his neighboring countries. It will get even worsen when Trump fully implemented tariff hike from China products.

However, the worst scenario is not immediate though. It could take a few more months to a year before the full impact could create recession. As of now, experts using mathematical calculation estimate that the impact from tariff hike itself is minimum to the overall US economy, but the continua escalation of trade war is not under their estimation yet.

Struggle of World Dominant

Looking at the US economy in light of the global scenario, it is not difficult to sympathize with what Trump is trying to do. It is actually a battle to retain the throne of world dominant. US has been losing trade advantage not only to China, but to many of its major trading partners in many years.

lossing-trades-e1529759438765.jpg
Table A ~ US trade deficit with top 10 countries of the world in 2017

Table A shows how much US was losing trade advantage to top 10 countries in 2017. China stood at the top. (Interestingly, Malaysia came at number 8 of the list.)  If nothing has been done as what Trump has claimed during his election campaign, US influence to the world is definitely sinking. Most probably handling over the throne to China sooner, but not later.  Experts are predicting China will take over the crown of the largest economy in the world from US by 2028.  That’s the reason why Trump is targeting China as the most visualized enemy for the “Made in China 2025” ambition. It is the struggle of world dominance. He wants to “Make America Great Again.”  It’s just that the method he uses is highly debatable.

The concern now for Trump is how to slow down the process of being taken over or the best is to prevent it from being taken over. With the way Trump is handling now, the worry is not only affecting the world economic growth, but entangling US economy eventually and speed up the process of being taking over instead of slowing it down.

Hurting US Economy 2
Trade war worry is more on whether it will hurt the US economy eventually

It is also undeniably that Trump can fold back his trade war tactic any time before it gets worse, but as for me, it is also highly improbable.

So while we profit from market run up, do not look too far and lust too greedily, thinking there will be more market bull to run. We can only look and invest one step at a time in this critical hours.  Take profit whenever possible, invest whenever there is a dip.

Thank you for reading and happy investing but invest safely!

 

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RISK WARNINGS

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to make up individual investment decision.

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