Should We Expect a Trade War Between the U.S. and China?

Should We Expect a Trade War Between the U.S. and China?

Crisis averted—for now. Last week President Donald Trump met for the first time with Chinese President Xi Jinping at his luxury Palm Beach estate Mar-a-Lago, where the two leaders discussed North Korea and trade, among other topics.

Several times before I’ve commented on the implications of a possible U.S.-China trade war in response to Trump’s repeated calls to raise tariffs on goods shipped in from the Asian giant. On the campaign trail, Trump threatened to name China a currency manipulator and even suggested that, were he to become president, he would serve Xi a “McDonald’s hamburger” instead of a big state dinner.

I’m happy to say that no Big Macs appeared to be on the menu last week. Nor were there any immediate signs of a disastrous trade war. In a much-needed win for Trump, the two leaders agreed on a 100-day assessment of the trade imbalance between the world’s two largest economies. In addition, Xi pledged to give the U.S. better market access to important Chinese industries such as financials and consumer staples. Specifically, he conceded to lift China’s ban on U.S. beef imports, in place since 2003.

Perhaps Trump is the master negotiator he’s always claimed to be.

As encouraging as this news is, it will likely take a while before significant improvement can be made in balancing trade between the two nations. In 2016, the U.S. trade deficit with China stood at a staggering $347 billion, down from $367 billion in 2015.

Gold Expected to Continue Benefiting from Low to Negative REal Rates

China’s Importance as a Trading Partner Should Only Increase
 

My use of the word “crisis” above was not made lightly. China is currently America’s third-largest export market after Canada and Mexico, having bought $116 billion worth of U.S. merchandise in 2016. That’s up from $19 billion in 2001, an increase of 510 percent.

The U.S., in other words, really can’t afford a trade war with such an important trading partner.

On Tuesday, the president tweeted that China would get a “far better” deal with the U.S. “if they solve the North Korean problem.” But then, it’s the U.S. that’s seeking a better deal from the Chinese, not the other way around.

Among the most valuable U.S. exports to China are, in descending order, oilseeds and grains, aerospace products and parts, motor vehicles and electronic components such as semiconductors.

Since 2010, China has been the world’s top purchaser of light vehicles manufactured by General Motors, and today it’s an exploding market for aerospace and defense companies. Between 2010 and 2015, China surpassed Japan, the U.K., Canada and France to become the number one importer of U.S aerospace and defense equipment, according to Deloitte. The Asian country spent $16.48 billion on American-made civilian aircrafts, engines and aviation parts in 2015, up more than 180 percent from five years earlier.

China Now the Number One Importer of U.S. Aerospace and Defense

Boeing is currently China’s leading provider of commercial jets. Back in September, the Chicago-based aerospace company announced that China was in need of more than 6,800 new aircrafts over the next 20 years, an ongoing enterprise valued at roughly $1 trillion.

So crucial is the Chinese market that Boeing, in cooperation with Chinese aerospace manufacturer Commercial Aircraft Corporation of China (COMAC), just began construction on a Boeing 737 completion center in the island-city of Zhoushan. The center is Boeing’s first-ever overseas facility. By 2018, it should be capable of delivering as many as 100 737s per year.

Demand for health care goods and services is also set to expand dramatically as the country’s population ages. By 2030, an estimated 345 million Chinese will be over the age of 60, necessitating even more medicines, treatments and medical devices.

Once this 100-day assessment period ends, my hope is that the U.S. and China can continue to work on strengthening trade. China should continue to be a valuable partner as its gross domestic product (GDP) grows and its citizens’ incomes rise. As I shared with you in February, Morgan Stanley projects the country to become a high-income nation sometime between 2024 and 2027. Looking ahead, the Asian country could conceivably become America’s number one export market—provided Trump can hash out a better trade deal without inciting retaliatory trade blockades.

Frank Holmes
Global
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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm ... Click for full bio

Most Read IRIS Articles of the Week: April 17-21

Most Read IRIS Articles of the Week: April 17-21

Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017 


Click the headline to read the full article.  Enjoy!


1. Market Keeping You up at Night? Look for the Right Hedge


Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti

2. How to Manage Bond Market Pain and Seek the Gain When Rates Are Rising


The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside

3. Seven Reasons You'll Fail as a Financial Advisor


Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard

4. The Secret to Turning Every Prospect into a Client


How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel

5. Why Do Clients Change Advisors?


According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild

6. Why You Should Focus on Getting Referral Sources


I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing

7. How Big Picture Thinkers Seize More Opportunities in 7 Steps


Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini

8. 5 Actions to Build Your Reputation


Your reputation is who you are and how you show up, Monday to Monday®.  Many of us take our image and reputation for granted.  Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke

9. How Are You Poised to Begin Welcoming GenZ to Your Workplace?


The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier

10. Are Price Objections REALLY Price Objections?


Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter

11. Understanding the Economic Value of Transition Deals


Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond

Douglas Heikkinen
Perspective
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IRIS Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues to ... Click for full bio