The U.S. is Winning the Trade War

If the stock market is any indication, the U.S. is winning the trade war.  It is not just in stock prices.  The South China Morning Post recently published an article on The Bank of China’s move to cut the reserve ratio for lenders; a signal economic policy makers in China are starting to address the global trade challenge with an adjustment to domestic monetary policy.  Interpretation, they need to stimulate domestic economic activity to create more import demand.

Overall markets are holding ground or moving higher which may indicate trade tensions are starting to wane.  The bickering continues but ultimately nobody wants an all-out trade war.  One of the advantages favoring the U.S. is our economic recovery and overall strength; the U.S. is relatively better off than other countries.  If a trade war erupts, everyone suffers.  If we can find a way forward, we all benefit.

Here’s a look at global asset performance year-to-date through the first week of July (Stockcharts.com).

U.S. stocks are the sole winner in terms of global asset classes.

Here’s a look at the performance of specific trading partners (Stockcharts.com).

Here too the U.S. is on top with Mexico and the U.K. also turning in positive numbers.  Interestingly, the U.K. has performed very well over the last year, delivering twice the gains of European Union leader Germany.  It looks like stock investors are feeling a bit different about Brexit compared to the economist, analyst and politicians that have been attempting to undermine the move.  Being nimble and dynamic to maximize the unique advantages used to be rewarded in the global economy.  Not so much anymore but their’s still some hope.

There are risks to the U.S. in pursuing a more favorable trade environment.  China, Russia, EU, Brazil – many countries have established direct trading relationships in the 21st century.  A push for better trade deals for the U.S. could drive more trade between other countries and cut out the U.S. altogether.  It is a difficult to envision a Trans Pacific Partnership deal without the U.S.  Is the Yuan ready to support global trade?

If there was a time to make changes to trade agreements, now is a good.  A reduction in international trade always has the potential to slow an economy down.  Better to do it when other economic factors are improving.  If the U.S. can achieve some improvement in the process, all the better.

Posted in Dightman Capital, Economic Analysis, International Stocks, U.S. Stock Market.

Brian Dightman