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Trump, trade and share prices

We will have to live with market swings while President Trump intensifies trade rows rather than settling them.

Trump, trade and share prices

John Redwood

in Features


The Trump trade wars have been a dampener on markets from time to time throughout 2019 so far. In the early months many investors expected a settlement in May, but the deadline came and went with no deal. The market view was also that the President would concentrate his trade fire power on China, delaying any action against the European Union which is in his sights and living with the settlements he has achieved with Mexico and Canada. This also turned out to be wrong. In recent weeks the President has re-opened a dispute with Mexico, threatening tariffs if they do not do more to prevent illegal migration across their border. He has also made initial moves against India, condemning their high tariffs and demanding reductions, as well as warning them against buying Iranian oil.

According to President Trump China and the USA had reached a fairly extensive agreement on most issues, only for China to resile from things the USA thought were agreed. China complains that the USA has gone ahead and imposed additional tariffs instead of completing the negotiations. The US decision to ban Huawei from various contracts and systems in the West has also been worrying to the Chinese, who are pressing ahead now with their own version of Nasdaq, aiming to accelerate growth and fund raising by domestic technology companies in China. China is building stronger alliances with Russia and with a number of Asian and African countries to provide an alternative power grouping to NATO and the West.

The Mexican spat has been a good illustration of the Trump tactics. He announced by tweet that he would impose 5% tariffs on all Mexican exports to the USA, rising in stages to 25%, unless they took action to stop the flow of illegal migrants across the US/Mexico border. The Department of Commerce did not issue a formal consultation about this measure or set out the detail. Before the tariffs were due to come under emergency powers President Trump claimed he had a deal with Mexico that would improve the border position, so he would stay the tariffs. He now says there will be a review of progress at the border after 45 days and after 90 days, which could still lead to tariff imposition.

The White House website describes the problem as they see it in strong non-governmental language. They write “Gang members, smugglers, human traffickers and illegal drugs are pouring across the southern border and directly into our communities. Mexico’s passive co-operation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the USA”. Given this President Trump will presumably need some good numbers on illegal migrants over the next two months to let the threat of tariffs lapse.

The larger trade dispute with China evokes a more measured but firm response from China to the imposition of tariffs on Chinese exports to the USA. China states “The US has raised its duties from 10% to 25% on US $200bn of Chinese imports into the USA, and China is deeply sorry for that and has to take necessary counter measures”. China does not accept all of the US accusations about unfair trade, and states that “a clean hand needs no washing”. The USA has “to correct its wrong actions”.

The danger is both sides dig in and gradually add to the frictions in their trade with each other. In particular the dispute can produce a cyber curtain descending, with the Chinese grouping wanting their own independent technology and digital services as will the West.

Much of this could be played out at the G20. There is likely to be a Modi/Trump meeting, with President Trump demanding a better deal from India. President Xi of China and President Trump will doubtless meet and exchange words, but as yet there is no formal meeting to exchange copies of an agreed trade treaty. The best markets can hope for is both men decide at the summit to outline a deal and set their negotiators to work again to finalise the terms.

President Trump will not want to crash the stock market and will be cognisant of any big adverse effects on the US economy. For the time being he claims to be happy that the US economy is strong and the tariff revenue he is now collecting could be useful for other purposes. We will have to live with market swings all the time there is no deal. Today we are in the negative phase of thoughts on trade as President Trump is currently intensifying the rows, not settling them.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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