The high-flying U.S. stock market will crash if President Trump keeps his promise of trade protectionism against China.
Please note that I used the word “will” instead of “might.” That’s quite a conviction on my part, given my second law of investing states: “Nobody knows with certainty what is going to happen next.”
The timing is critical, as Trump is meeting China’s President Xi on Thursday. Here is a good summation of Trump’s harsh positions on China over time. Trump last week predicted a “very difficult” meeting with Xi because of “massive trade deficits and job losses.”
Due to the importance of this issue for serious investors, let’s start by looking at two tables and one chart.
Tables and chart
Please click here to see the month-by-month trade imbalance with China for 2016 and 2017. The trade balance has not materially fallen since Trump’s election, even though he has used many words to persuasively alter it.
Please click here for the annual U.S. trade imbalance from 1960 to 2015. Note how dramatically the trade imbalance has risen over the years.
Please click here for the chart that distinguishes between the trade imbalance for goods and services. The U.S. has been running a surplus in trading services but a deficit in trading goods.
The foregoing shows that the problem of trade deficits is severe and cannot be ignored forever.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
To be precise
In my 30-plus years in the markets, having experimented with most analysis techniques, the only way I have found to be consistently successful is to first think and then rigorously model in terms of probabilities…Read more at MarketWatch
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