boy,
have times changed
The Good, the
Bad, and the Ugly re: Trump’s trade war and more tariffs on the way.
The “GOOD” is from Trump and his loyal supporters
who contend: “We are winning the trade war against China that's good” they cheer wildly.
Trump base sees him in only one dimension (no dots to be
connected)
The “BAD” for China: They are reeling from the effects of
trade tariffs imposed by the United States and may be facing a major slowdown
in its growth that could be worsened by additional tariffs. Their rock-solid
economy has already started showing cracks:
1. Their growth in its manufacturing sector has
slowed,
2. Its stock market has tumbled,
3. The country has faced “extremely complicated
and severe” domestic and external conditions in the first half of the year
4. Chinese political leaders are also trying to
roll back massive credit and debt expansion.
The “UGLY” (forthcoming for the
U.S.): All this could
also spell disaster for American workers, American-based companies, and world economies
around the globe making the U.S. especially vulnerable.
From James Barrineau, head of
emerging markets debt at Schroders argues: “That a slowdown in China carries global contagion
risks. Why? China is not only the world’s second largest economy — and the
world’s largest measured by purchasing power parity — it’s also a top trading
partner with almost every country on the planet and a major focus of U.S.
policy making.
He added: “If the
market were to conclude that trade wars were causing significant stress in an
economy of that size I think risk appetite globally would dry up pretty
quickly.”
That in turn
would be a major risk to U.S. markets, particularly stocks and other financial
assets, as the benchmark S&P 500 index already is trading at historically
high levels. Also, since Trump has antagonized and threatened tariffs not just
on China but the EU, Japan, Canada, Mexico, and many of the world’s largest
economies, the U.S. would be hit harder than other nations.
From the IMF chief economist, Maury
Obstfeld just last week: “As the focus of global retaliation, the United States finds a
relatively high share of its exports taxed in global markets in such a broader
trade conflict, and it is therefore especially vulnerable.”
Now on top of all that, Trump has threatened to
increase tariffs on more than $500 billion worth of Chinese imports to the
United States — nearly the totality of what the Asian nation sends — which
would far exceed the tariffs China can place on U.S. imports, simply because
they import far less.
But that doesn’t mean that China can’t retaliate.
Chinese
officials said this week that they would not intentionally devalue their
currency, which has fallen 5% since June to its weakest level against the
dollar in more than a year. Chinese policy makers also have a number of
options.
From Liz Young, senior investment
strategist at BNY Mellon Investment Management North America says: “There are more “hidden risks” than
possible benefits for the United States and the rest of the world if things
start to really blow up in China with the trade war.”
She continued: “They can put on some qualitative measures. They can
delay mergers between U.S. and Chinese companies. They can encourage their
consumers not to buy U.S. products. But those aren’t quantifiable, they would
probably affect sentiment more than anything else.”
The real danger of
sentiment:
From Linda Zhang, founder and CEO of
Purview Investments, who grew up in China who says: “Worsening sentiment could be a
silent killer for the U.S. economy because many American companies are deriving
significant revenue from their operations in China. While import/export
statistics show significantly more products coming from China into the United
States than in the opposite direction, that total doesn’t account for much of
the haul from U.S. enterprises that have set up shop in China and sell products
locally. If Chinese customers were to turn against those companies – whether on
their own or at the direction of the Chinese Communist Party – the hit could be
substantial,” she concluded.
A recent survey from financial
research firm Fact Set shows that the 20 U.S. companies in
the S&P 500 with the highest level of sales in China totaled $158.4 billion
during the most recently reported full fiscal year. Apple, the world’s largest
company, reported $44.8 billion in Chinese sales that year.
Five other U.S.
companies, including Broadcom Ltd. and Qualcomm Inc., reported that more than
half of their sales came from China. Thus, anti-American sentiment in China
could mean significantly reduced sales for those companies, which represent a
major share of the U.S. stock market, potentially leading to a drop in stock
prices and a bear market or a recession.
Impact: Seeking to get out ahead of these
negative effects, companies would likely move more operations to China. More
companies moving to China or to other countries outside the U.S. that aren’t
involved in this trade war would likely mean more job losses in the U.S.
My 2 cents: All that in place and developing to
get far worse all comes from “the greatest businessman in the world: Donald J.
Trump – by his own bragging, the best negotiator ever; the smartest man ever; the
brightest, best-educated, and most-talented and experienced human being ever,
um? (His words NOT mine).
And, then what – all those experts mentioned above are dead
wrong? Or in Trump’s next tweet: “Fake economists” I surmise.
All that is the ugly part – and folks it will
get uglier down the line and then once things are balanced, guess who comes out
on the crappy end of the stick: Yep, the ones he said he would “Make
America Great Again” for. And, holding the stick: Trump Empire, Inc (that is he, his family, and cronies).
Wow – I’d hate to see him try and make us even greater...!!!
Thanks for stopping by.
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