After a 90-day truce, on March 1 the U.S.-China trade war turns hot again.
If the U.S. and China don’t announce a deal, the U.S. is set to raise tariffs on US$200 billion worth of Chinese exports from 10 percent to 25 percent.
And depending on the source and the day, the trade war is either coming to an end – or ramping up for the next stage.
Just take a look at some recent headlines:
“Trump Says China Trade Talks ‘Very Productive’ as Team Returns” – Bloomberg
“Dear China, Get Ready for 25% Tariffs” – Forbes
“World markets hit 2019 high amid trade war optimism” – The Guardian
A few days ago I told CNBC what I thought is going to happen… click on the link below (and read on)…
This is what’s really going on
U.S. President Donald Trump has long accused China of unfair trade practices. So on March 22, 2018 he announced tariffs on US$60 billion worth of Chinese goods coming into the U.S. Since then, trade tensions have ramped up. The U.S. and China have implemented tit-for-tat tariffs on US$50 billion of exports from each side, and are on the brink of slapping tariffs on hundreds of billions more worth of exports.
In December, Trump and Chinese President Xi Jinping declared a 90-day ceasefire to the trade war.
As I mentioned, the two have until March 1 to reach a deal. Talks have been going on for a while. Markets jump when a trade negotiator or politician from one side says something optimistic… and tumble when someone says something pessimistic.
But as I told CNBC, most of this is just political theatre. Don’t expect any sort of long-term deal on March 1.
Instead, I expect them to announce some sort of medium-term compromise – but one that doesn’t have much substance. China might make a vague promise to buy more U.S. goods. Or the two might push back the deadline to reach a deal. In any case, they’ll say nice words to each other… but nothing will really change.
I think it simply doesn’t suit either one to come to any sort of conclusion anytime soon.
Rattling China’s cage is good for Donald Trump. It appeals to his base (Trump promised to get into a trade tussle with China during his presidential campaign). And anytime there’s a problem – Trump can just blame it on China. The economy has slumped? Oh, it’s China’s fault!
And as for China, so far, the country has refused to make any meaningful concessions to the U.S. to cut the U.S. trade deficit with them.
And with a US$14 trillion economy and a population four times the size that of the U.S., China is not going to be pushed around.
So while markets will likely move higher on news of some sort of agreement or truce – don’t expect it to last long term. That means there’s likely more volatility ahead.
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A lot of positive news already factored in
Markets all over the world have been on a big winning streak since bottoming in late December.
The S&P 500 Index has gained 18 percent since December 24, the MSCI World Index is up 15.7 percent, and even the MSCI China Index is up 15.3 percent.
A lot of this has to do with expectations that something good will come out of trade talks between China and the U.S.
The problem is that expectations are often reflected (or priced) into the markets well before the underlying development connected with these expectations actually happens.
In this case, the expectation of good news from trade talks has been priced in even before anything has been agreed upon.
Markets that looked cheap or reasonably-priced a month ago are now looking frothy.
How you can protect yourself
Of course, your portfolio doesn’t know that it’s all a big show. So to protect your assets from market gyrations stemming from the U.S.-China trade war, do the following…
- Start by diversifying your investments into different assets and geographically. This includes buying hard assets such as gold.
- Make sure to put adequate stop-losses on your investments where possible. The best way to do this is to use a trailing stop. They help protect your gains during steep market drops, and they limit your losses to preserve your capital for future reinvestment.
- Finally, make sure you keep some cash on hand to jump on opportunities that open up during volatile periods.
Following these safety measures will help you prepare for whatever happens with the U.S.-China trade war.
Publisher, Stansberry Pacific Research
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