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via Scott Minerd, Global CIO of Guggenheim
During the course of the last two years, we have consistently indicated that the course for the U.S. economy, along with risk assets and rates, was contingent on the impact of any unexpected exogenous events, most likely from overseas. Of all the exogenous events that could possibly derail our long-term economic and market outlook, a full-blown trade war with China is closest to being realized. Just a few weeks ago, Washington and Beijing appeared to be close to an agreement. The subsequent breakdown in talks and ****-for-tat tariff escalations have put the world’s two largest economies on a collision course to a full-scale trade war. The United States has announced an increase in tariffs on $200 billion of consumer and other goods from 10 percent to 25 percent, with threats of further tariffs to come. China followed suit with its own schedule of increased tariffs on $60 billion of American-made products.
Precedent - Face-off - Term - Reports - Trump
Given the limited historical precedent, it is difficult to predict if this face-off will continue long term or be resolved quickly. By all reports, neither the Chinese nor the Trump administration seem prepared to blink, but rather than rely on the press for insight, we decided to do some of our own digging. We recently talked to several China-based portfolio managers and a supply chain manager to learn more about the U.S.-China standoff. The main takeaway from our notes below: The Chinese are buckling up for a long ride.
Beijing is preparing for a protracted standoff. The leadership has concluded that the intention of U.S. negotiators is not just to resolve trade imbalances but also prevent China from moving up the value chain, a key long-term objective for the Chinese.
Tariffs - Products - China - United
Tariffs on the remaining $300 billion of Chinese products would hurt China, but the United...
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