China Trade War Escalates or is it “Art of the Deal”?

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The President stated his intention of escalating a trade war with China and the markets summarily dropped. A real trade war with China or any other country tends to lead to a downward spiral and bring to mind events like the “Smoot-Hawley” trade tariff that arguably triggered the Great Depression. This along with rising rates and a rising U.S. dollar is hitting international and Emerging Markets hard. In fact in June so far MSCI EAFE and MSCI Emerging Markets have underperformed the S&P 500 by -3.8% and -5.0% respectively. This is bad...real bad, unless this is gamesmanship as in the so called “Art of the Deal”. Either way, US companies are more protected from market fallout from trade barriers than other developed countries, which has allowed the US to take charge on these tariffs. It is in the interest of the Chinese not to match the tariffs or increase them even more, as it is their shares who fell to their lowest level in nearly two years as a result of this emerging trade war. Not to mention, the US has great domestic exposure, as 73% of the revenue produced from its companies comes from home. The U.S. seems to have the upper hand, but negotiating is more art than science.

Please see page 47 of the Voya Global Perspectives Book to see where total world imports and exports are at all-time record highs.

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