Investors have heard about trade tensions between the U.S. and China. The countries are in a trade war, and it is difficult to predict its implications for the countires economies and stock markets. It is worth to examine what the countries are fighting about and if it should change investing strategies.
Why are the U.S. and China imposing new tariffs on each other? In 2017, the U.S. began looking into China’s trade policies and decided the deficit between the U.S. imports and exports to China was excessive.
The U.S. government imposed billions of dollars in tariffs on some Chinese goods coming into the U.S. and China imposed tariffs on some U.S. imports. The countries tried unsuccessfully to resolve the trade imbalance. Why does the trade war matter to investors?
Sellers pass tariffs’ costs to their customers. For example, prices on some electronics manufactured in China and exported to the U.S. increase some devices’ prices causing sales from U.S. tech companies and consumer spending to fall. Tariffs on U.S. goods exported to China have the same effects in China.
The International Monetary Fund has warned that a trade war between the U.S. and China could hurt the global economy, because the countries have the two biggest world economies.
The trade war between the U.S. and China have caused some volatility in the stock market, but investors should not panic and sell their stocks. The stock market has produced strong returns over the long term amid wars, recessions, depressions and other negative events. The current trade war is creating some investing opportunities, as some investors leave the market, the stock market drops, and savvy investors buy stocks at bargain prices.