Just how much of a threat is the trade war?
As the US and China bring out the big guns on trade, we look at the implications for investors and the wider economy.
3 min read
With trade tension between the US and China growing, we ask if it’s mere public posturing or genuine cause for concern.
On the surface there appears to be little to worry about. The all-important US economy continues to flourish and last week’s latest tariffs had no immediate negative impact on markets. In fact, stocks rose following the news. Investors had expected it for some time and factored it in accordingly.
The levies thrown at China by the US – and vice versa – could also have been bigger, which means both countries have left room for further negotiation.
But how long can the status quo last and how worried should investors really be?
Is Uncle Sam OK?
A key factor is how damaging it could all be for the US which continues to be the powerhouse of global economic growth. The general consensus from market analysts is that the trade war, in its present state, will not actually have a big impact on the US economy – and that’s good news for investors.
US exports to China accounted for less than 10% of total US exports last year, according to the Office of the US Trade Representative. China is still America’s third biggest export market, so is important to the country, but such a small percentage highlights the relatively limited scale of any trade war impact.
Meanwhile, current data suggests the US economy will remain healthy well into next year.
The ISM Manufacturing Index, for example, a key measure of how companies feel about the economy, beat expectations in August and showed a buoyant, confident manufacturing sector. A number above 50 is positive; the latest figure was 61.
How much US shares have risen so far this year*
Rise in US company profits expected by the market in 2018**
The percentage of total US exports that went to China last year***
* MSCI USA, dollar returns, as at 31 August 2018. ** FactSet & Raymond James, August 2018
*** Office of the US Trade Representative.
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