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Home Marketwatch How Should Traders Be Reacting To The Trade War?
How Should Traders Be Reacting To The Trade War?
Jacob Maslow
Traders and investors across the marketplace have been riled by the ongoing geopolitical dispute between the United States and China like few others, with many growing concerned that their long-term financial interests could be seriously harmed by the continuation of the quarrel. Despite the fact that so many traders have been caught up in the tumultuous wake of the trade war, however, relatively few of them understand the geopolitical complexities at play and have little to no idea where to start when it comes to reacting to ongoing tensions.
How should investors, traders, and professionals of all stripes be responding to the trade war's continued malaise, anyway? Here's what to expect from negotiations in the near-future, and how they'll impact the market
Neither side can afford to capitulate
If there's one important facet of the ongoing U.S.-China trade war worth knowing more than any other, it's that neither side can afford to capitulate. On the American side, President Trump was elected in no small part because of his harsh rhetoric surrounding trade, and he's repeatedly pledged to trim down Chinese influence in the American marketplace since the earliest days of his political career. Furthermore, many of the president's most ardent rural supporters are some of the hardest hit by the ongoing dispute – just look at how American farmers have fared lately – and reverting back to an ante bellum status quo would mean injuring them and their economic prospects for no reason.
On the other side of the Pacific, things are no different; President Xi Jinping and the communist authorities backing him can't be seen as capitulating to American bullies who hope to rein in the Middle Kingdom's ever-growing economic heft. China still believes it has the upper hand, largely because the domestic political situation of Communist authorities there is more stable than that of their American negotiation partners – after all, the Chinese don't have to worry about elections or term limits.
There are few reasons that Chinese authorities would capitulate to President Trump's demands, especially when doing so would simultaneously dampen their economist prospects while enraging domestic hawks who are yearning for a confrontation of some sort with American businesses and political actors.
This is bad news for traders and investors of all stripes, as it effectively guarantees that there won't be a major diplomatic breakthrough to ease tensions for some time. American farmers may be suffering, and businesses across the country scrambling to reset their supply lines, but negotiators on both sides are dug in and clearly misunderstand one another without caring a fig about reconciling their disparate beliefs. Investors who are betting on the ongoing trade war dissipating anytime soon should start taking a more long-term approach to this tumultuous affair.
For investors desperately searching for the path forward, it's time to understand that you need to protect your investments and shelve any ambitious ideas about the trade disputes between the United States and her various trading partners ending anytime soon. Whether we're discussing China or a different trade conflict, like that going on with India, it's clear to see that American authorities in charge of negotiations benefit domestically from irritating their foreign partners, regardless of whether they extract meaningful economic concessions from them. As long as the president is politically rewarded for "taking it to America's enemies," who he claims are ripping off American businesses, he'll continue on his current course.
Investors should thus seriously consider how they're going to protect their investments from foreign interference, especially since American companies will find themselves slapped with tariffs every time a new conflict boils over somewhere across the globe. The world of duty-free exports could very well be in the rearview mirror for some time, especially since nationalistic politicians across the globe are eagerly embracing protectionist measures which enable them to argue that they're protecting domestic interest at the expense of cheating foreign competitors. The market will doubtlessly keep churning forward through this, as it always has, but that doesn't mean traders will scrape by uninjured from the ongoing disputes dotting the globe.
Convincing most people of the value of free trade could be a losing fight, regardless of whether economists have facts to back their arguments or not. Voters, citizens, and consumers aren't nearly as rational as we like to think, and it's fair to say that many political interest groups around the world are responding positively when their leaders strike out against trade partners and erect protectionist barriers to stymie further economic integration. Globalization can't be reversed, but it can be vilified and targeted for political gain – thus, traders should be digging their heels into the sand and expecting a brutal, protracted conflict that's unlikely to end anytime soon.
As depressing as it may seem, traders should be reacting to the ongoing trade war by understanding that this form of politics and diplomacy could be the new international norm for the foreseeable future.
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