Trade war troubles, rising inflation and an earnings season update.
Trade tensions are back in the spotlight as President Trump threatened new levies against China. Recall, on Oct. 9, China applied new export control on products containing 0.1% or more of rare-earth materials or technologies originating from the country, potentially impacting everything from semiconductors to electric vehicles to drones and defense equipment. In response, the White House proposed a 100% tariff on all Chinese goods beginning Nov. 1.
The Trump administration said this week that it was considering curbs on Chinese exports of critical software, essentially barring any goods containing U.S. software from being exported to China. Meanwhile, in their four-day Fourth Plenum planning meetings this week, China acknowledged it faces “profound and complex” changes and rising uncertainty, without directly mentioning the trade war. State media said China will strive for “rapid economic development” and “consolidating national security,” by speeding up self-reliance in science and technology.
With tensions between the world’s two largest economies on the rise, Trump will meet with President Xi Jinping in South Korea on Oct. 30 during a summit in Asia. It will be the first face-to-face meeting for both leaders since Trump’s return to office. President Trump said that the U.S. commands “great respect” from Beijing and that he will reach a “fantastic deal” during the talks.
Many of you have asked what to make of these headlines. Is this trade war careening towards disaster for both superpowers? Could there be a decoupling of these two economies? Is there room for cooperation?
The Trump administration’s goal is to punish China for unfair trade practices, including Chinese subsidies that hurt American workers, technology and intellectual property theft, and illicit fentanyl trafficking. Some economists doubt Trump’s approach will achieve its desired goals and raise concerns that tariffs will drive up inflation and the costs of goods, harming U.S. consumers and exports. China would argue the U.S. is a hypocritical and bullying power that would risk undermining global stability to contain China’s rise, particular in areas of technology.
There is no question that the U.S. and China are deeply intertwined economically, and strategic competition has intensified. Up until now, that relationship was contained by rolling negotiations and truces as either a durable trade pact or a hard economic decoupling were not realistic options. Will this time be different? It is hard to believe some milestone negotiation could occur when both have so much at stake, and nobody wants to lose face with the other—or on the global stage—with the rest of the world watching.
It was notable yesterday that Canadian Prime Minister Mark Carney took a swipe at the Trump administration’s tariff and trade policy, with proposed steps to counter U.S. tariffs by targeting double-digit growth in exports outside of the American market. His 10-year plan also included a provision to attract talented immigrants who may have otherwise chosen the U.S., which will make Canada less reliant on America. Trump responded by terminating trade talks with Canada, calling out an anti-tariff ad featuring the words of Ronald Reagan. Groan—just in time for hockey season.
While markets are stabilizing following some midweek volatility on this trade news and some disappointing earnings reports from Tesla, Netflix and IBM, worries continue to cloud investor psyches as they examine the high trading levels of stocks and the growing pile of risks that do not seem to have a path to resolution. As the government shutdown continues, there is little economic data to report, save the consumer price index figures that were released today. (The report comes a week and a half late due to the shutdown, but it was needed to calculate the annual cost-of-living adjustment for Social Security beneficiaries, hence any release at all). The data showed consumer prices continue to be stuck at high levels, rising 0.3% in September, which drove the annual rate of inflation from 2.9% to 3.0%, the highest it’s been since January.
The punchline is that investors are vulnerable to some high-risk politics right now, between the government shutdown and trade negotiations. As exciting as AI has become to the market, ‘tis the season for a ghoulish gut check to cut euphoria back, even if temporarily. It is a great time to review required minimum distributions, consider year-end rebalancing, charitable gifts of securities and otherwise refilling your cash and safety bucket, even if just a bit, to set yourself for the best outcome if something wicked this way comes.
Written by a human.