Trying to Dissect the Trade Forest through the Trees

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The trade uncertainty has shifted gears as companies are starting to take actions to mitigate tariff impacts. There is still a myriad of moving pieces but one thing is becoming crystal clear, the Trump Administration is determined to reset the trade relationship with China. Hence the rejection of China’s conciliatory offer in May to import more U.S. goods. Intellectual property rights and joint venture policies are the biggest sticking points. Adding to the already muddy waters, are the U.S. steel and aluminum tariffs imposed against our allies – Mexico, Canada and the European Union. These U.S. allies in turn are imposing their own retaliatory tariffs. But that does not mean our allies stand with China. The EU has long had issues with China and their steel dumping, imposing tariffs to combat unfair practices. The tension with U.S. allies is still clouded by noise but the China relationship is a separate issue. China has been a bad actor in the trade arena across the globe. Now, China is beginning to feel the heat. The Shanghai indices are in bear market territory. Last month’s Chinese industrial production, retail sales and investment were all below forecast. And the Chinese Yuan has been losing ground to the dollar which could spur capital outflows. The uncertainty of the trade landscape will slow the economy but it remains to be seen by how much. So far U.S. companies have not been guiding earnings downward (Q2, Q3 and Q4 estimates > 20% growth) and the impact is minimal. As always, diversification can help smooth market bumps. Please see page 4 of the Global Perspectives Book for an example of effective diversification.

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