Since taking office in early 2017, the Trump administration exited the
Trans-Pacific Partnership, demanded NAFTA revisions, and announced tariffs
on numerous imports. The recent resignation of Trump’s top economic
adviser, Gary Cohn, dealt a big blow to free-trade proponents inside the
White House. Now, with the U.S. singling out China, the threat of a trade
war between the world’s two largest economies has unnerved investors.
Although the economic impact of recently proposed trade actions is actually
quite small, the main danger is that the rules may now be rewritten, with
the world moving away from an era of liberal trade and open markets.
Full-blown protectionist policies in the U.S. would undoubtedly prompt
retaliation from other nations and convince the world that the global
trading system is unravelling. Such a shift would mark the largest and most
dangerous change in economic thought and order in decades.
However, it is imperative to delineate aggressive rhetoric from underlying
motives and intentions. While Trump has stated that trade wars are “good
and easy to win,” the reality is that America has worked hard to shape the
global trading system, and U.S. multinationals have benefitted immensely.
While Trump’s base may cheer “America first” policy-making, such actions
are largely to their detriment.
Rising import prices will disproportionately hurt lower-income households,
while jobs are unlikely to return to the hollowed out U.S. manufacturing
sector. Free trade has been a staple of the GOP platform, with past
Republican presidents including Reagan and both Bushes embracing
globalization. This ideology remains intact, as Cohn’s resignation drew
condemnation from at least half the GOP caucus in Congress.
Accordingly, we believe Trump’s bark will be bigger than his bite. Trade
threats will likely continue but are more likely aimed at drawing
concessions from trading partners than instigating an all-out trade war.
While the recent global equity selloff may present a buying opportunity, we
prefer to maintain a balanced asset mix approach while closely monitoring
developments between the U.S. and global trading partners. From a regional
perspective, our preference for equities in Europe and Asia has been
further strengthened. In today’s highly interconnected world, we believe
the perceived instigator of trade tensions will ultimately be the “biggest
Further nationalistic actions from the U.S. would likely strain domestic
households, erode U.S. multinational companies’ earnings, and encourage
trade partners to diversify their export bases. If the U.S. withdraws as
global country leader, expect other leadership (namely China) to fill the
Tyler Mordy, CFA, is President and CIO for
Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities
selection. He specializes in global investment strategy and ETF trends.
This article first appeared in Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong
Global, toll-free 1-888-419-6715, or by email at
firstname.lastname@example.org. Follow Tyler on Twitter at
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