The Trade war is here

After months of tough talk, the trade war is on. We’ve officially imposed tariffs, and the world has retaliated. We are feeling the impacts right here in the Wenatchee Valley as our apples were hit with tariffs by both Mexico and India. Similar stories are playing out all over America. This looks like the start of something the financial world has feared since Trump won the Presidency. So why isn’t the stock market freaking out?
The most obvious reason for the calm stock market is the strong economy. It’s hard for the markets to tank when the economic numbers are so solid. However, I also think the markets are understanding Trump a little better. With Trump, everything is a sales pitch or a negotiation.
He’s gone from saying China was “raping our country,” to recently tweeting that there were “too many jobs lost in China.” Just a few weeks ago, his Treasury Secretary announced that “the trade war is on hold.” But now we’ve enacted $50 billion in tariffs on China.
So, Trump’s words don’t reflect what is true, or even what he really believes. When he tweeted that “trade wars are good and easy to win,” he was just bluffing that he’s silly enough to think that. I’m not a fan of that strategy; I’d prefer that my adversaries see me as serious and knowledgeable. But he is clearly trying to negotiate. I think the markets are taking solace in that realization.
However, I worry that the markets are ignoring a couple risks. First, this is a very delicate situation with high stakes. Even if this is all a negotiation and neither side wants a major trade war, it’s not hard to imagine things spiraling out of control – which is the worst-case scenario.
Even if Trump plays this perfectly, and a year from now we have the greatest trade deal in the history of the universe with China, there’s still the question of how much damage could be done to the economy until that time. Trump has started trade fights not only with China, but also with Mexico, Canada, Japan, and Europe. In other words: All of our major trading partners. That uncertainty has to paralyze our business world to some degree.
However, a little uncertainty is a lot better than an all-out trade war. The markets are still betting that it won’t get too nasty. Thankfully, our economy is strong right now, so unless things get too crazy, I think we’ll be okay.