So now, trade war between the two giants has really gone out officially on Friday July 6th 2018. The question now is not so much on whether it will get deteriorate or whether the global economic will spiral down, but rather, what will be the ultimate outcome at the end of the war.
For the US, current job market data released for June looks perfectly strong. Stock markets are robust like never before. These has encouraged President Trump to make the shot confidently. Common sense believes that trade war will not only hurt the opponent countries but to the US itself ultimately.
However, the effect is not immediately but may be 3 to 6 months later. More jobs have been created unsurprisingly as Trump’s trade policy draws foreign invested US companies to return to US for corporate tax cut advantages and later on import disadvantages. This is the immediate victory created by Trump’s economic policy.
US Economic Shift
However, the real test comes later on, after those products produced within the US can create as much sale as produced in China remains doubtful as of now. There were reports saying that those returned US companies were surprised to discover that production in US has been more auto machine operated rather than labor dependent and therefore ruled out the advantage of cheap labor cost provided by China.
But for long term perspective, as the tariff rolled out from now on, imported parts and materials for production will be higher. Production cost and consequently sale prices will be increased as a result. Market turnover rate will become another issue US has to confront later on, let alone exporting to other countries, as tariff retaliated by other countries will be the defending walls against US products.
On the other hand, since export has its barrier, local spending is also having its limitation, there could be an oversupply of goods and products, consumer prices might be diluted and deflation will possibly be a result. Pork poultry and soy bean businesses is now facing this issue.
As import tariff imposed by the US government, inflation of imported products will be at play. There would appear an economic chaos between the deflation and inflation the US administration has to juggle. Loss of job will be the eventuality if this scenario lingers further down the road.
US then would be under pressure to come back to the negotiation table and lift the tariff eventually. This must be done earlier. If this coming back too late, say after a year or more, other nations feel that they can survive this trade war, finding their own way of survival, discover new trading routes, new means of trading relationship, they would possibly leave US alone in isolation for the rest of the future.
Non US Alliance Economic Shift
For other non US alliances or US current economic opponents, similar economic chaos will also happen respectively in different forms and dimensions. But for sure one thing different from the US is that, they will possibly alliance together since their common enemies is none other than US, the largest economy in the world.
China, being the second largest economy now have to play a vital role in resolving this global economic conflict. While upholding traditional free trade slogan, China has been reaching out to European Union, the third largest economic block in the world, to join hand to battle against this trade war. But European Union is currently reluctant to response at this moment since they too share a common concern with the US against China trade practices.
China in desperation, has also trying to win this war through more engagement with Asian countries and African nations. Responses and progresses are well underway. If this move is successful, China will be less dependent on US for its future growth.
Generally, there will be a great shift and changes in global trade relationship. Eventually, if there is no turning back, US will be isolated, China will open more trading relationship with non-US alliances, especially among those nations that are less developed, possibly even European Union would want to have a share too.
The Great Tectonic Shift
However, just like the great Tectonic plates move on earth structure, there will be quiet on the surface. But at times, earth quake will surface onto the earth level. These would possibly be the next global economic scenario looking forward.
This great global economic shift is not going to be smooth and easy. There will always be pains and struggles. Market will tremble, make correction, and consolidation. Global market indexes will all be travelling down south and settle at the bottom after a lengthy period of time. From there emerges out a new global economic order, independent of US influence and dominance if ever shall be.
Possibly China will be the next economic super power taking the lead of the world market particularly among the developing nations, heading to take its crown as the largest global economy by 2028 or earlier depending whether China can be successfully wrestled over this trade war for its own advantage.
As for investors, it’s almost the best time to consider moving your asset to invest Gold related funds as recommended previously. While prices of those two funds are still relatively low at this moment, it is always good to jump in before it flies off. Nevertheless, one of my recommended gold related funds, Precious Metals Securities landed the third highest return for one month this weekend in Fundsupermart platform (4th in Morningstar rating). Would you believe it will emerge as number one later on when global market turns south? It’s all for you to decide.
Even if you were to invest in gold related funds now, do not expect these two funds to spike up immediately. Because the real effect of trade war will take several months to alter economic data. Currently the scale of the tariff imposed by all countries would just not large enough to pose significant impact for global economy in terms of the figures. However subsequent threat of further implementation like 200 Billion tariff US imposes against China and the impending auto tariff European imposed against US and vice versa will be definite more damaging beyond repair later on. We would just keep an open eye and watch for these events to unfold itself. It’s just seems that there is no return for the trend of this trade war.
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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 preferences.