China just put Donald Trump on notice.
That’s the first bit of real news out of the World Economic Forum in Davos, Switzerland. There, Chinese President Xi Jinping took to the podium to defend economic globalization.
In the process, China’s top politico fired the first salvo in what could be an ugly spat — one that morphs into a potential trade war between the U.S. and her Far East rival.
Xi warned the Davos audience — a gathering of the world’s business and political elites, as well as the rest of the world — that “chaos in our world” is not the result of economic globalization.
He also said that negative events such as the financial crisis and Europe’s refugee crisis were not connected to globalization.
Later in the speech, Xi offered up the following direct shot at the president-elect:
“No one will emerge as a winner in a trade war.”
So, how is that likely to go over with what President-elect Trump is thinking? And what does that mean for your money?
|Image Credit: Wikipedia|
Looking at the latest appointments to advisory positions, it certainly seems like the Trump administration is gearing up for a potential trade war.
Here’s how the Wall Street Journal described it in an article published today:
President-elect Donald Trump’s pick of four key advisers on trade and international affairs shows he is serious about confronting Beijing, Mexico City and other capitals in an attempt to open up markets for U.S. exports, while curbing imports that compete with key American-made products.
Indeed, part of the appeal of Trump’s candidacy was his “get tough” policy on China. Candidate Trump repeatedly accused China of manipulating its currency to help exports while hurting imports.
He also criticized companies such as Apple (AAPL) for choosing to make products in the nation with rock-bottom production costs.
Xi’s comments at Davos are undoubtedly aimed at making sure the Trump administration doesn’t impose tariffs on his country’s estimated $483 billion in exports to the U.S.
Such tariffs might help some industries here in the U.S. (steel and manufacturing). But that also would really hurt industries such as discount retailers, including companies (and widely held stocks) such as Wal-Mart (WMT) and Target (TGT).
This also would increase the cost of goods for nearly every American, and that could lead to 1970s-style “stagflation,” a situation where economic growth stagnates in part due to rising inflation.
I suspect that a President Trump is not going to court the handmaiden of stagflation … but that’s not a given.
I do, however, think that the last thing Mr. Trump wants is an ugly battle with Beijing.
Really nobody I know wants that. And nearly everyone who has money in the markets is rightly fearful of the implications if there were to be a real trade war.
If we do see an escalation of trade tensions, counterintuitively, it could mean a boost for many of China’s domestic stocks.
|The Global X China Consumer ETF (CHIQ) could benefit from U.S.-China trade tensions.|
That’s because China would likely act to pump more fiscal stimulus into its economy to make up for any loss in exports. That would also likely mean a boom for China’s domestic markets, including companies that do more business within the country than they do in exports.
This is just some of the counterintuitive thinking you’ll find at Uncommon Wisdom Daily, and particularly in my Crisis Options Trader service, in the coming days and weeks.
Right now, we are preparing for what I call the “Orange Swans” associated with the decisions and policies of the Trump administration.
And while a trade war with China is just one of many Orange Swans we’re watching, it’s not likely even the most probable.
If you’d like to find out more about how to invest for the Trump administration, stay with us … as everything is about to change in literally three days.
What do you think about China’s trade war warning? Do you think we are in for a brawl with the world’s second-largest economy? I want to know what you think, and doing so is as easy as leaving me a comment on our website or sending me an e-mail.
Stocks opened lower across the board, weighed down by profit-taking in financials. The Financial Select Sector SPDR (XLF) fell 2.4% in Tuesday’s session, while the Dow and S&P 500 shed 0.3% apiece.
• Morgan Stanley (MS) fell 3.8% despite handily beating Wall Street estimates in today’s Q4 earnings report. The bank reported earnings of 81 cents per share on adjusted revenue of $9 billion, while analysts expected 65 cents on $8.5 billion.
• MS wasn’t the only falling financial. Goldman Sachs (GS) dropped 3.5% in front of tomorrow’s pre-market earnings report. Citigroup (C), which also reports tomorrow, fell 2.1%.
• “All out”: UK Prime Minister Theresa May said the Brexit will be a clean break from the European Union, rather than a “half in, half out” partial membership in the bloc. The pound sterling gained 2.6% after May’s statement, its best day since 2008.
• Bigger Tobacco: Reynolds American (RAI) surged 3% after British American Tobacco (BTI) said it would buy the rest of Reynolds that it didn’t already own. The $49 billion deal is $2 billion more than BTI’s previous offer and creates the world’s largest publicly traded tobacco company.
• WTI crude oil gained 0.2% after the Saudis said they would strictly adhere to their production-cut promises.
Good luck and happy investing,
Uncommon Wisdom Daily