Investment Insights

Investment Insights: Trade "Negotiations"

09 April 2018

By Cliff Aque, CFA, Investment Strategist

Much is being made in the mainstream media about a trade war between the United States and China, and the continued back and forth between Washington and Beijing has added to market volatility. While the initial announcement of $50 billion worth of Chinese goods sounds large, it should be examined as a percentage of total imports with China, which were over $505 billion in 2017. Thus, the initial 25% tariff on 10% of imports equated to a 2.5% tariff across all imports.


A further escalation from $50 billion to $150 billion after the market closed on April 5, 2018 and China’s immediate response will likely add to market uncertainty in the short-term. However, it should open the door to negotiation as China only imported $130 billion in goods from the U.S. in 2017 (and $50 billion in services). China wants other countries to see it as being pragmatic by responding through legal channels to keep its access to both outbound investment and inbound capital. Retaliation through selling its Treasury holdings or depreciating its currency seem unlikely, but are risks.

China’s significant participation in the global supply chain, makes it in everyone’s interests to come to a resolution. With a public hearing on the U.S. tariffs scheduled for May 15 and seven days afterward open for feedback, there is still time to talk, but a negotiated solution is not going to be easy. The markets will certainly be watching and, until there is more certainty around the final outcome, they will continue to be volatile.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. Opinions are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.