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Mike Reynolds

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Trade wars make for volatile times

The Trump presidency has seen a rapid return to protectionism with the introduction of new tariffs on Chinese goods aimed at lowering net imports and protecting domestic industries. China responded with its own tariffs targeting key US exports. While China may have more to lose, the escalating trade war is adding to global economic uncertainty. The first round of tariffs on Chinese imports applied primarily to raw materials and manufacturing components, hitting business confidence first. But US consumers are likely to feel the next round at the checkout, increasing the risk of an economic downturn in the lead-up to next year’s presidential election.

Shots fired by both sides in the trade war

This information is accurate as of 17th October 2019

USA CHINA
August 2018

Tariffs on steel (25%) and aluminium (10%) exports

$16 billion in tariffs (25%) on machinery

Tariffs on aluminium, pork, fruits and other goods

$16 billion in tariffs on fuel, steel products,
autos and medical equipment

September 2018 $200 billion in tariffs (10%*) on furniture,
appliances and other goods
*To be raised to 30% in October 2019
$60 billion in tariffs (10%) on agricultural
goods and food products
Sept and December 2019 $300 billion in tariffs (15%) on consumer
goods like smartphones and clothing
$75 billion in tariffs (5-25%) on cars, auto
parts and soy beans
October 2019

On 11th October 2019, China and the United States reached a tentative agreement for the first phase of a trade deal, with China agreeing to buy up to $50 billion in American farm products, and to accept more American financial services in their market. In turn, the United States agreed to suspend new tariffs scheduled for 15th October 2019.

Source: GZERO, Office of the United States Trade Representative

Share markets have so far proven resilient after bouncing back from initial shocks, but ongoing volatility is expected as markets try to make sense of the outlook for a long-term resolution. Trump’s off-the-cuff tweets only add to the confusion, fuelling short-term uncertainty while delaying meaningful, long-term business investment which could prolong any resulting downturn.

As of now, there is no clarity over the upcoming phase of tariffs that were scheduled for December. China had sought a time-bound phasing out of all tariffs, which was not accepted by the US. Until the "handshake agreement" is formally signed, global markets are bracing for a protracted battle between the US and China for economic supremacy.

During volatile times like these, it's important to make rational decisions without getting swept up in the day's headlines. Against this backdrop the FMD Investment Committee is meeting regularly to review our investment portfolios and ensure our clients are well positioned to protect against a range of global and market risks. There will be winners and losers as a result of the trade war, but well managed, diverse investment portfolios remain the best option for long-term investors.


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General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.