Market Implications of the Trade Dispute

Investors are fixated on every capricious twist and tweet in the deteriorating trade saga between the White House and Beijing. Markets are gyrating as the globe’s two largest economies spar over commerce, trade practices and economic hegemony. While it’s possible to tamp down the squabbles, inimical rifts remain. In a war for technological dominance over the coming decades, the US is handicapped by comparison. For example, our nation’s Judeo-Christian policy framework set guidelines on US stem cell research and cloning. China, however, is unconstrained by such measures. The US government cannot own companies directly, as China does, to help drive research outcomes in technology, health care and alternative energy. China’s alternative energy initiatives helped them dominate the solar industry: the country generates more than 130GW of electricity using solar power, nearly double the output of the US.

Given the breadth and depth of the issues between the two nations, we doubt America’s dispute with China will be resolved quickly or easily. In fact, we can envision a scenario in which certain tariffs remain in place indefinitely despite an interim agreement. A further breakdown in talks would take its toll on equity markets. Determining whether an ensuing pullback would be an opportunity or a threat would depend on liquidity trends. For now, liquidity levels are strong, as evidenced by lenders’ willingness to extend credit. We also take comfort in President Trump’s petulant nature and his desire to spur a rally going into the 2020 election season.