Skipton Financial Services
Wednesday, June 26, 2019 - 15:24

Market update: Trump's trade wars

President Trump has made no secret of his issues with China’s trade practices. They were near to the top of his agenda in 2016, before he even took office.

After his inauguration in 2017, Trump wasted no time in launching an investigation into Chinese trade policies.

2018 saw the US impose the opening tariffs of this trade war. With Trump claiming they were a vital part in protecting US national security. Ever since, the US and China have been locked in an escalating trade battle.

Up to now, many US and international companies have found themselves caught up in the ongoing dispute. But it’s electronics giant Huawei that have been making the most headlines. The US has blacklisted the smartphone company from doing business with US companies – one of the named reasons being Huawei’s close links to the Chinese government. With Trump and his administration believing the relationship causes concerns to US national security.

A move that many believe was made to add fuel to the fire, analysts predict that Trump will use the ban as a bargaining chip to eventually strike a trade deal with China. 

How have we got to this point?

March 2018: The US imposes tariffs on billions of dollars’ worth of Chinese products. These tariffs were rolled out in three stages, on more than $250 billion worth of goods. Levies of up to 25% were placed on a wide range of industrial and consumer items. With targeted goods including Chinese machinery, auto parts and medical devices.

April 2018: China retaliates by imposing tariffs on $110 billion worth of US goods. These include chemicals, coal and medical equipment. With the levies imposed ranging from 5% to 25%.

December 2018: Both sides agree to a truce. Talks begin to try and wage some sort of agreement. And as the months go by, optimism begins to grow.

May 2019: The truce doesn’t even last six months – the US makes the decision to more than double tariffs on an additional $200 billion worth of Chinese products. Once again raising levies to 25%. At this point the dispute has now become the biggest trade war in economic history.

May 2019: Trump signs an executive order under national security pretences. It’s the order that limits the business Huawei can do with US companies, effectively banning the company from the US.

June 2019: It doesn’t take long for China to retaliate to the US government’s actions. They impose hikes on $60 billion worth of US goods.

What’s next?

Officials from both sides claim the countries are still in talks to strike a deal. But at the same time the US has also started the process for hitting an additional $300 billion worth of Chinese goods with tariffs.

Trump has also recently expanded the trade war, adding another two countries to the list – Mexico and India.

He’s threatened Mexico with rising trade tariffs to strike a deal. This deal is intended to stem the flow of migrants from Mexico to the US.

In terms of India, the US has taken measures to remove them from the preferential trade programme – something that gives developing countries easy access to US markets.

It’s impossible to tell what the next move will entail. The trade war with China has been ongoing for almost a year. With talks being hindered, and now the introduction of two more countries, it feels like the situation could escalate further. And after the success of Trump using tariffs to negotiate a deal with Mexico, he may use the same technique to strike deals elsewhere.

What’s the market impact so far?

There has been some effect on global markets, with May seeing markets across the world dip. But that should be expected. This is a trade war that involves two of the largest economies in the world. Two economies that many other countries rely on.

For example, emerging markets that rely on the two economies – especially in terms of globalisation – have particularly felt the impact. 

With no end in sight, analysts are predicting there’s a possibility risks to markets could linger into next year.

What could this mean for investors?

Mark Elliot – Head of research and risk.

Its important investors don’t panic over the current situation. It may seem worrying, but market uncertainty underpinned by global events is nothing new. Markets may be affected in the present and the near future. But this could only be temporary.

History shows that the longer your money is invested for, the longer it has to grow. Staying invested is a vital part of money management. Of course, there’s always that lingering prospect to lose money. But if you stay committed the potential to gain also stands true.

It’s also important to note that not all industries and markets rely on these two economies. And as a result there are some areas that are actually benefitting. If anything, this demonstrates the importance of holding a balanced investment portfolio.

All in all, the Trump administration has, at times, proved unpredictable. So it would be impossible for us to accurately predict what happens next. One thing is for sure, some of the policies in this trade war are also harming US industries. You’d therefore imagine Trump would want to resolve the dispute in the near future – especially with the 2020 election on the horizon.

If you’re unsure about your investments, and how current events may be impacting their performance, you could speak to an adviser to find out more.

Past performance is not a guide to future returns. Economic and market conditions experienced in the past may not be repeated in the future. If you have any doubt about the suitability of an investment for your individual circumstances you should seek financial advice.

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