Get Your Hand Out My Pocket

Over the past two weeks, our news has been inundated with trade wars, whether it is related to China or Mexico. As a layman, it is tough to understand why this matters but the impact of these trade wars have a negative impact on your wallet and investment outlook. Various articles have been written about the trade wars and its impact on individuals and the economy, but I'll reference information primarily from two articles written in Bloomberg and Financial Advisor Magazine. These two articles were really great at putting things in perspective in relation to the trade war and economy, but the points worth mentioning are:

1. The initial rounds of tariffs on Chinese goods had minimal impact on consumers, but new tariffs initiated have negatively impacted consumers and businesses by increasing input cost, hence negating the tax cut most received. Most prices either will or have started gradually increasing for everyday products.

2. While the Mexican tariff threats have subsided, had those gone into effect it would've been disastrous for everyone due to Mexico being our biggest trading partner.

3. The tariffs have created a drag on the stock market, causing some to project that the Federal Reserve (the Fed) will cut rates again to keep the market trending upward.

4. Despite having a lot of positive news, this market seems to mimic 1998 which was the beginning of the tech bust.

While trade talks have dominated the news, the dirty secret is that trade has a minimal impact on the economy (see the chart).
Chart courtesy of Peter Zeihan, The New World (Dis)Order

If anything, trade war rhetoric has created more uncertainty for markets around the world. It also has started to force people to question the assumption that free trade is a global standard. On top of that, the trade wars have indirectly forced the Fed into reconsidering future rate cuts which were supposed to be tabled for 2019. If anything the new position being taken has been at the detriment to the consumer/investor as it has forced a change in how goods will be produced, revenue growth will be attained, and cost will be contained/lowered.

All in all, while trade war rhetoric has made for entertaining television, it has had a negative financial impact on everyone involved.

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