Who's Winning The 'Trade War'?

Just how crazy is Donald Trump?

Back at the beginning of March, the president famously tweeted:

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
- President Donald Trump

You probably don’t remember what the exact reaction to that was, but you can probably guess it involved hoots of derisive laughter. After all, the idea of the president of the United States upsetting the world apple cart by supposedly starting a trade war with China and our biggest trade partners and closest allies was the height of lunacy.

But who’s laughing now?

Since then, the Chinese stock market has been in practical freefall, the dollar is soaring, U.S. stocks have pretty much outperformed other major countries, and long-term U.S. Treasury yields have dropped fairly sharply.

In the first half of this year, the Shanghai composite index, the main equity index tracking mainland Chinese stocks, dropped nearly 14% in local currency terms, including more than 10% in the second quarter. By comparison, the S&P 500 was up 1.7% in the first half, excluding dividends, and up 2.9% in Q2. NASDAQ was up, even more, 8.8% for the half and 6.3% for the quarter.

Meanwhile, the dollar was up 5.5% against both the Chinese renminbi and the euro in the second quarter, 4.2% against the yen, and 6.1% against the British pound.

And of course, long-term Treasury yields are down well below their earlier peaks. The yield on the benchmark 10-year note ended the half at 2.86%, down 27 basis points from its mid-May peak of 3.11%, and the 30-year bond ended June at 2.99%, down from 3.25%.

This wasn’t supposed to happen. After all, if Trump started a trade war, it could only end badly for everyone, worst of all for America, or so we were told. Yet the U.S., as measured by some important financial benchmarks, isn’t doing so badly, while the rest of the world is suffering. Of course, the argument might be made that if Trump hadn’t started this mess for no apparent reason, everything would be a lot better, with all of the world’s stock markets rising as before. But we don’t know that.

Maybe Trump was on to something after all. As Jim Cramer commented on CNBC last week: “We simply, as a people, seem to be united that the president's position is wrong. I hear more of that on TV than I hear reality. I think that there are a lot of people [who say], ‘Thank you for standing up for us.’”

Certainly, the markets have overreacted to just about every utterance or tweet by Trump – and the responding rejoinders by China, Canada, the European Union, et al. – since this debacle began, rather than treating them as the negotiating positions and tactics that they are. It’s clear that no matter how many times we’ve been told to read Trump’s 1987 bestseller, The Art of the Deal if we want to get inside the president’s head and learn how he thinks, it doesn’t seem that many people actually have. Perhaps they should.

(It’s actually a pretty good book, even if you read it just for the entertainment value. But as the book shows, Trump seems to operate the same way today that he did more than 30 years ago, so shame on you if anything he does takes you by surprise).

The Financial Times, not known for being particularly friendly to Trump (it’s not), astutely noted back in late March that “there is some truth to the observation that in a trade war, deficit countries [like the U.S.] hold an advantage over those with trade surpluses [like China]. China’s trade surplus swells its economy each year, while net imports subtract from U.S. growth. From this perspective, economists say Mr. Trump is correct that he has less to fear from a decrease in trade with China than President Xi Jinping.”

“In principle, a trade war is something that deficit countries with diversified economies should win, and surplus countries always lose,” added Michael Pettis, a finance professor at Peking University’s Guanghua School of Management. “So it’s not really an even battle.”

So far, if their respective stock market and currency performance is any indicator, that’s proven to be the case.

Perhaps many of us need to get over the mental hump that everything Trump does, especially in the economic and financial sphere, is bad, and everything our adversaries and rivals do must, therefore, be good. So far, the major financial benchmarks tell a completely different story.

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George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

12 thoughts on “Who's Winning The 'Trade War'?

  1. Why is it that when USA tells EU and GB that we will eliminate ALL tariffs and fees and restraints on trade they don't just say... OK?

  2. It is refreshing to read the dialogue without broken glass and burning tires make America great our commander-in-chief needs our support and we will complete this process +4 more years It has taken us generations to get to this point and it’s not going to change overnight Speak softly and carry a big stick and take no prisoners

  3. the trade wars in the near term are good for the US but in the long term will create a European, Russian, China, Japan, India block union that will only trade within themselves locking out the US. Then how will that look?? Will this happen before the Election 2020??

  4. It is quite early stage to predict about winner or defector of Trade war, as The mathematics behind Trade war is far far far harder then any simple formula like 1+1=2. there will be a chain reaction process, constant changing policies and sword and shield fights will take place so As far as any ultimate or absolute winning is concern, no one will be assumed or can be declared as "Winner" because an absolute winning is not possible in the trade war, simply because of even so called, or believed "winner" too, had to faced counter or adverse effects,either directly or indirectly, so at the end of game, no one will be identified either as "Winner" or "Looser"

    Against above, one thing is dam sure that people or citizen of all Trade war involved countries will be surely, definitely and badly looser, because they will have to bare burden in both ways like more payment for imported goods, which were available at chipper rates due to lower import duties, and less receipts for goods, they are exporting, because of higher tariffs, imposed by importing countries, so as an end out-come that will be a Higher Cost and Lower Earning scenario.

    I think, i will not surprised to find Grave yard results for many present Business and Commerce related Global arrangements like WTO, TRIPS, and alike treaties, situation will get more and more damaging and disastrous for all concerned players.

    Finally, Trade War will teach us many many new lessons, off course, at the cost of very uncertain amount of Fees, paid for such learning.

  5. The United States has allowed our unholy trade deficit to go on for decades. The nation also allowed our manufacturing jobs to be exported to other nations with near-slave labor and substandard working conditions. It took one man with real stones to actually do something besides talk-talk-talk and get no results (like Ford, Carter, Reagan, Bush Sr, Clinton, Bush W, and Obama)..Millions of Americans wanted huge change and Trump is actually trying to do what he promised he would do. We want both FREE and FAIR trade NOW (not tomorrow, we've already had 40 years of waiting), and we want as much of our manufacturing jobs to return to our shores as possible. And we want no more intellectual property theft by China or anyone else....No more Uncle Sucker either, the rest of the world needs to ante up much more for the programs, defense, etc that they enjoy but have not contributed nearly enough $$ for their part.

    1. "The nation also allowed our manufacturing jobs to be exported to other nations with near-slave labor and substandard working conditions."
      The standard for working conditions in other countries is not the same standard as the US. That is a false meme. Get over it.

      "~and we want as much of our manufacturing jobs to return to our shores as possible."
      Between regulations, taxes, and eco-freaks, those manufacturing jobs will never return.

  6. This is just the beginning of the trade war! The tariffs have barely begun to kick in and the reprisals have just begun. If Yacik thinks he's smarter than history, I suggest you check back about election time 2019 and see how world stock markets and economy is doing.
    I think you're going to see a very different picture and it's not going to be pretty!

    1. Bob S. Election time in 2019? Where? Not in the US. Your comments are noted and I will revisit them
      with you most likely in 2020.

  7. Politicians are boggled by someone who can actually DO something-----!!!was for Donald in the beginning----for Donald now-----and always will be----!!!our country has the opportunity to be GREAT again-----!!!!The Dems and Libs----and some Reps----are an embarrassment to our country---and to themselves---just think what progress would have been by now-----if all the resistance efforts ---had gone into helping Donald ---instead of fighting him at every turn---!!!!----a lot of "bottom Feeders"----lifelong attendees at the Gov. trough will be voted out of office in upcoming elections---cannot wait---!!!!!

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