Trade War and the China Conundrum

Economic trends in China give plenty of reasons to appreciate the intensity of trade negotiations with the worlds 2nd largest economy. Watching as President Trump raises the stakes, this long-running trade war should not be misunderstood as his personal agenda, as many people do. The rhetoric from politicians leaves nothing more than a trail of confusion and anxiety. As with any large-scale maneuver, it takes time and strategy to reach the intended outcome. We think our readers will appreciate a simpler version without the rancor and discord.

China is a $12 trillion economy and represents about 15% of the $80 trillion global economy. Thus, China is a critical contributor to overall global economic growth, even if it “only” grows 5%-6%. In fact, 6% growth in the Chinese economy today adds more to global output than the 10% growth achieved five years ago (when China was growing faster but was smaller). Without question, this is an important part of the global growth story. Rightfully so, U.S. companies need and want access to this economic progression. However, the current playing field does not support fair and amicable terms.

As President Trump works through (his style) negotiations, we anticipate concessions and modifications before reaching an acceptable resolution in the China conundrum. The short-term impact of escalating trade wars to U.S. GDP will likely be negative. Farmers and many manufacturers are facing challenges. Nevertheless, it is important that the U.S. secure greater protection for corporate intellectual property rights. Furthermore, the outcome must be one that provides well-defined policies free of ambiguity that could otherwise lead to multiple interpretations. Why is this so important?

The U.S. economy is evolving – our greatest contributions over the next few decades will likely be in non-manufacturing areas. Think of IT design, healthcare and finance to name a few. Failing to protect these industries through carefully planned policies will most surely weaken the long-term economy and, consequently, send us back to the unpleasant world of controversial negotiations. Without question, these are uncomfortable times, but most growing seasons don’t come without challenging conditions. Talk to an Advisor today about how OmniStar Financial can help you meet these challenges through solid investing and wealth management strategies.