Where is the trade war?

Were you scared? Based on the remarks of talking heads in the past few days, I get the sense that most of people were really scared! Indeed, the headline news was scary enough: a trade war has started today with the US tariffs on $34 billion worth goods taking effect and China made the same tic-for-tat retaliation on the US exports. On the surface it really looks like a trade war but I maintain my humble opinion that this is just a noise from the big economic scale and the current battles will only accelerate the process to reach a comprise between the two parties in the months ahead. If this were a real trade war for the US, S&P would have crashed by 15-20% or even more. Why so? Well the last real trade war occurred over 80 years ago in 1930s and the US market was brought down by over 50%, triggering a 20 years of deep depression. That’s how a real trade war will lead us to. But S&P jumped nearly 1% instead today! Apparently the market is not worried about a trade war at all!!

As I said, Trump is not a real politician at all. He is an acumen businessman. As such, he is doing something no any other professional politicians dare to do: taking advantage of the booming US economy that no other countries can match to initiate seemingly aggressive trade conflicts with other major parties and force them to renegotiate. After all, the current global trade order that all other parties are very comfortable with is established on the extreme imbalance at the expense of the US interests. No previous presidents from either side dared to do anything to fundamentally change it because it might have costed their votes. Professional politicians are all short-sighted by nature and you cannot expect them to change anything if it means hurting their short-term votes. Trump is the only one I have seen so far who dares to challenge the political norm as he knows very well that the other parties will lose much more if not comprised. We have seen a 25% crash from the Chinese stock market while the US market, although seemingly very volatile, has virtually done nothing in the past couple of months when the “trade war” fear is escalating. We now see the possible zero tariff trade deal with the EU on cars, an idea offered by Trump. I have no doubt something in this nature will happen between US and China in the weeks ahead. Apparently this is what the market also telling us, folks! Yes, the conflicts may further escalate to make one fear that it is out of control and a full blown trade war will happen. This is exactly the time I think a more favorable trade deal for the US may be made, i.e. the worse (from the headlines) the better (in reality)! Talking about the Art of Deal!!

With this belief in my mind, I was a bit aggressive in the past few weeks to buy at each major dip. So far the reward of this fear trading is fantastic. I even believe now is a good time to buy Chinese stocks, a contrarian speculation of course.