A Deeper Look at Trade Tensions

A Deeper Look at Trade Tensions

October 23, 2018

A Deeper Look at Current Trade Tensions

For some time, trade tensions have dominated headlines, causing concern in investment markets. With no control over the markets and how they will behave, Portfolio Solutions® believes that remaining in a globally diversified portfolio is the best course of action.

The trade tensions that investment markets are trying to navigate today have emanated from the current U.S. Administration’s belief that global trade arrangements are unfair to the U.S. This belief is being driven by the differences between the average level of tariffs the U.S. places on trading partners’ goods versus the average level of tariffs our trading partners place on our goods. These differences are summarized in the following chart:

Further, the U.S. Administration believes it has a strong bargaining position from which to make changes given the strength of the U.S. economy. In addition, the U.S. economy does not rely on exports to the same extent our largest trading partners’ economies do as noted above.

A tariff is essentially a tax placed on a specified good being imported into a country that causes end consumer prices to rise. When prices on a good go up, demand goes down, as does aggregate economic growth. This is why investment markets are concerned by trade tensions. If the U.S. places a tariff on a good being imported from a country, that country will likely retaliate by placing a tariff of an equal amount on goods they import from the U.S. If a series of retaliations continue to escalate, resulting in a “trade war”, the negative effect to global growth could become material. This position could negatively impact global investment markets.

It appears likely that trade tensions will continue to dominate headlines for some time. This could cause additional heightened volatility and concern in investment markets. That is why we believe remaining invested in a globally diversified portfolio and employing a disciplined needs-based rebalancing strategy is the best course of action for long-term investors.

The team at Portfolio Solutions® hopes you found this information useful. As always, contact us at any time – we are here to serve you.

All information presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service. Please click here to see our blog disclosure, which immediately follows the “Applicable Law and Venue” section.