The trade war is on…no wait, it’s off.
Can China and the US please make up their minds?
On Tuesday, Donald Trump said he would tax US$50 billion worth of Chinese imports. He also plans to restrict Chinese investments into US tech.
From the White House:
‘[The US] will impose a 25 per cent tariff on $50 billion of goods imported from China containing industrially significant technology, including those related to Made in China 2025….
‘To protect our national security, the United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.’
If this sounds familiar, there’s good reason. Trump has talked about a similar plan for weeks. Yet I, and everyone else, thought he was now willing to negotiate with China.
Apparently not.
Words from the White House even caught China by surprise. China’s commerce ministry responded immediately to the announcement above.
‘[The move] clearly contradicts the consensus reached by China and the US in Washington recently,’ the ministry said.
‘China is confident, capable and experienced to defend Chinese people’s interests and national core interests, regardless of whatever measures the US side could take.’
So what happens now? Will you have to gear up for the greatest trade showdown the world has ever seen?
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The likely outcome of trade talks…
If we look through history, trade wars can be brutal.
Take the US-Canadian trade war of 1866–97 as an example.
A decade before 1866, Canada and the US were happy to reduce taxes on goods traded. Both nations knew the benefit of free trade — more goods at lower prices.
As a result, both nations boomed.
But over time, nationalists began to murmur. They thought the other side was benefiting at their cost.
The US was first to tear up the treaty. They imposed taxes on Canadian goods to ‘level’ the playing field. Take a guess at what Canada did?
They, of course, soon followed with their own taxes.
Canada applied a 35% tax on US manufactured goods entering their borders. For many US companies like Singer, International Harvester and Westinghouse, the economics were better to simply pack up and move to Canada.
And that’s exactly what they did.
The US came back with a 50% import tax.
Both nations weren’t just limiting consumers’ choices. They also forced citizens to pay higher prices through tariffs.
The trade war was a lose-lose situation.
It took nearly a century for both countries to resume the free trade they once had.
The same situation would likely play out if a trade war ensued between China and the US. IMD writes:
‘Were Trump to start a trade war, the most immediate effects would probably be felt by companies like Walmart, which import billions of dollars of cheap goods that are bought mostly by the people who voted Trump into office.
‘The prices on almost all of these items would quickly skyrocket beyond the reach of the lower economic brackets—not because of manufacturing costs, but because of the tariffs. The result would be an economic war of attrition that China is infinitely better positioned to win.’
And it wouldn’t be all sunshine and rainbows for China either. It’s why, even as Trump said he’ll tax China US$50 billion, I believe this will all blow over in a matter of months.
China wants to grow and America wants to continue the living standard they enjoy today. Why risk what you have now for a marginal benefit?
So rather than focus on this trade war, which is what most investors are doing. Why not look at real opportunities to multiple your money?
Multiple your money
One positive from the trade talks has been a Chinese push for technology. Talks of limiting US goods have scared many investors. But for China, it’s bolstered their conviction.
They already knew advanced technology would lift their economy higher. Now they know it’s a must. It’s why they’ve ramped up their already teeming tech industry.
In the process, you could find new innovative companies just waiting to jump multiples higher.
But if tech doesn’t float your boat, what about China’s future agriculture needs?
China’s ‘agriculture industry may have hit its limit,’ Business Insider wrote last year.
‘ Over the past two decades, China’s prevailing diet has shifted away from grains like rice and wheat in favour of richer animal proteins and a wider variety of exotic vegetables. As Bloomberg reports, this change has left the country short of land on which to grow produce and raise livestock.’
You can imagine Kiwi beef, dairy, vitamin and poultry companies could be direct benefactors of these shifting middle class tastes.
Good thing Chinese consumers already love Kiwi products.
These are just two of many opportunities you could make multiple times your money on.
There’s huge growth coming out of China and Asia. And there will be plenty of stocks that could benefit.
Your friend,
Harje Ronngard