TRADE WAR WITH CHINA - Potential Effects

Friends,

Happy Friday. As you might have seen, the week ended with US stocks sharply lower, after the Trump administration announced it will impose restrictions on Chinese investment and tariffs on nearly $50 billion worth of Chinese imports.

A tariff, simply put, is a tax on an imported good. Today, the main purpose of a tariff tends to be about protecting particular industries from foreign competition. For the Trump administration is a campaign promise to be kept and a nationalist approach for a very complicated issue.

In general, for the U.S. is about leveling the field with China. China’s approach to trade is not reciprocal and unfairly gives them an advantage. As an example, the Chinese government have subsidized overproduction of steal and ignored theft of US intellectual property. As of today, China imports to the US almost 4 times whatever the US exports to China.

In my opinion Trump administration’s approach is like going into a fight with Mike Tyson. At a minimum, this approach can spook the stocks market and slow the US economy and; at worst, could negate all the economic growth that Trump’s other policies started and affect negatively industries incurring in revenues and job losses.