Meraglim Blog

Trade War Headlines Are Not a Flash in the Pan. This War Will Get Worse.

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The stock market traded down when the trade war headlines first gained prominence in early February. Then stocks just as quickly bounced back on the view that Trump’s bark was worse than his bite, and that the tariffs and sanctions would be full of loopholes and exceptions.

As this article shows, that may be wishful thinking. It’s true that Trump offered relief to Canada and Mexico on the steel tariffs, but that was only so he could gain negotiating leverage on the NAFTA talks that are ongoing. If Canada and Mexico fail to give Trump the concessions he wants on NAFTA, those steel tariffs can bounce back to hit Canada and Mexico as they already hit China and Brazil.

Meanwhile much larger tariffs and penalties are waiting in the wings. Trump will soon receive a report under Section 301 of the Trade Act of 1974. That report has been almost a year in preparation and will reveal that China has stolen over $1 trillion in U.S. intellectual property.

Section 301 gives the president broad authority to impose sanctions and penalties. These penalties are not limited to specific sectors but may apply across a wide range of goods and services from China that benefited in any way from the theft of IP. Initial reports indicate that these penalties will be about $60 billion. But, that’s just for starters.

Trump will wait to see if China is willing to make concessions in other areas. If not, he can easily double or triple that $60 billion figure. Wall Street has its head in the sand. This trade war is not going away anytime soon.

It will last for years, get much worse and be a major headwind for stock prices.

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