Politics is playing a bigger role in influencing the markets than is typical, and I (and others) am still
trying to figure out where Donald Trump is taking us, especially as it regards trade and other wars.
Besides prompting me to think hard and dig deep into what’s now happening, it is leading me to delve
deeper into past trade and military wars to see their effects on economies and markets.
will pass along my findings when I complete the examination. In the meantime, I will share some of my
ruminations for the little that they are worth.
Since Donald Trump sounds more willing to
enter into a trade war than any president since Herbert Hoover, and since starting a trade war is like
throwing rocks in the gears of the world economy, his recent moves are naturally scary to the markets.
However, thus far what he has actually done is modest and appears significantly politically
motivated, so what we are seeing could be a negotiation tactic and a political move that needn’t mean a
trade war is likely.
Also, as expected, the Chinese response to his move was modest, so thus
far we have seen a lot of threatening without much damage, which is understandable ahead of midterm
elections. If this is the negotiating that I expect, the next move will be toward some trade agreements
that will look like victories for Trump, so tensions will subside and the markets will like it.
That’s the most likely scenario. I would consider that scenario to be broken if there is any new
worsening in trade relations with China from here.
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