Temporary Trade Wars

When I was quite young I read a great book by Robert Ringer, “Winning through Intimidation.” The book contained some amazing information about negotiations, and how to win them. As I have watched President Trump over the past two years I wonder if perhaps he may have read Mr. Ringers book as well.
 
One principle Ringer taught was that the winner in almost every negotiation is going to the person with the least commitment to the outcome, or the person with the least to lose. He points out that wealthy individuals usually come out on top in negotiations because they don’t need the deal as much the person they are negotiating with. In short, Ringer teaches to always be the person who can walk away.
 
The stock markets have been pretty volatile lately due to several issues, but one of the most concerning to investors seems to be the so-called trade war with China. President Trump and Mr. Xi are involved in negotiations over trade practices, with each side claiming the other is being unfair, and threatening to impose additional tariffs if they don’t get their way.
 
There is legitimate concern on Wall Street over this issue since trade with China is important to our economy. Many companies, largely technology, have big plans for Chinese expansion and the current battle has significantly damaged their share prices. As I have analyzed the risks to both sides in this “war,” I have felt to look past the political posturing and focus on the hard numbers. So here they are.
 
According to the US Census bureau, the last time we had a trade balance with China was in 1985. Since then there has been a significant imbalance. So far in 2018 the U.S. has exported $103 billion in goods to China while importing a whopping $445 billion. The Chinese market accounts for only 9% of total U.S. exports so it seems clear that China has far more to lose if this trade war is not resolved. They need this trade deal more than the U.S. needs it.
 
I am confident President Trump has done the math on this and realizes he is in a powerful negotiating position.  We don’t want a trade war with China, and they don’t want one with us, but with much more to lose I am confident China’s leaders will do what needs to be done to resolve this issue. I am also confident president Trump does not want to drag this out longer than necessary and will be open to a negotiated solution that “improves” the U.S. position.
 
If the stock market gets its Santa Claus rally this year, I believe it will be driven by hope for a resolution of the trade war with China. If that happens I would look for tech stocks to lead the way as they have been the hardest hit over this issue.