Lessons On Trade Wars From A Master of Real War
At the risk of beating a dead horse on the topic of trade wars, the sequence of unfolding events is making me cautious near term.
Let me explain why.
First, for all those market pundits, analysts and investors who are following the twists and turns of this trade tiff using Trump’s Art of the Deal as their playbook…
I have a better read for you. Pick up a copy of Sun Tzu’s, The Art of War instead!
The Trump administration has taken a bellicose, saber-rattling approach to its trade dealings since day one, with different officials often contradicting each other and the President.
That sows the seeds of uncertainty, and one thing financial markets hate is uncertainty.
Also, Washington seems to relish the idea of bullying the Chinese in public, rather than negotiating in private. That’s certainly Trump’s style, no doubt, but it’s also a risky strategy.
To quote Sun Tzu: “Do not press a desperate foe too hard.”
China doesn’t like to be chastised publicly anymore than anyone else, but culturally, saving-face may be more important to the Chinese.
Source: BofA Merrill Lynch Global Research
At the end of the day, the U.S. has more to lose from an all-out trade war than most of our trade partners, including China and the European Union (EU).
According to analysis by Merrill Lynch economists, roughly 8% of the entire U.S. economy is vulnerable to a trade war, as you can see in the chart above. Meanwhile, only 4% of China’s GDP is at risk. Europe has even less exposure to deeper trade sanctions.
Bottom line: The longer this noisy posturing goes on, the more it weighs on both investor and business confidence.
Ultimately, an economic slowdown could become a self-fulfilling prophecy. That is, the more uncertainty created by this confusing trade spat, the more likely investors will be to raise cash, go on summer vacation and wait things out.
Also businesses will more than likely hold off on capital investments until the dust settles.
Here’s another Sun Tzu quote that I hope our trade representatives reflect on: “The greatest victory is that which requires no battle.”
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch