Here are 6 ways a trade war could wreak havoc on 401(k)s
Nobody wants an all-out brawl over trade. Not China. Not the U.S. And certainly not anyone with investments.
Financial-style trash talk has erupted between the U.S. and China. Last week, President Trump got the world’s attention when he threatened to levy tens of billions of dollars in tariffs on Chinese imports to the U.S. Beijing quickly retaliated with its own tariff threats. The financial fallout was sizable: The Dow Jones industrial average fell 1,400 points.
But then the Dow rebounded Monday, rising nearly 670 points on signs of a thaw in trade disagreements in the form of behind-the-scenes negotiations between the world’s two biggest economies.
The up-and-down action is likely to continue as talks between Washington and Beijing go on and signs of success or failure leak out.
Here are six things to watch in the trade talks that could move the market — and your 401(k):
Cooler heads or hot heads?
When it comes to peoples’ money, there’s a lot to lose. And politicians know it.
“Cooler heads will prevail,” predicts Joe Quinlan, chief market strategist at U.S. Trust. “There’s too much at stake. The world has never been more connected via trade and investment. Blowing up peoples’ portfolios isn’t going to get anyone re-elected.”
Talks ongoing or broken down?
News headlines saying negotiations are ongoing, rather than breaking down or making little or no progress, could be the difference between the stock market recovering and tanking, says Chris Zaccarelli, chief investment officer at Charlotte-based Independent Advisor Alliance.
“As long as a trade war can be averted through negotiations … (it will) allow the global economic expansion to continue uninterrupted,” Zaccarelli says.
Concessions or no concessions?
Markets will be watching to see if either side concedes some things in order to avoid a longer, more damaging fight. China, for example, could take steps to help the U.S. reduce its $375 billion deficit with Beijing, and the U.S. could perhaps back off its most punitive tariffs aimed at China, says Quincy Krosby, chief market strategist at Prudential Financial.
“While Monday’s market action suggests a reprieve in trade war headlines, the U.S. side appears ready to keep tariff promises alive if the Chinese side doesn’t move decisively towards viable concessions,” Krosby says.
Soybeans or no soybeans?
One sign of the negotiations taking a less market-friendly turn is if China targets U.S. soybeans with tariffs. The reason: While China accounts for only 8% of overall U.S. exports, according to U.K.-based Capital Economics, nearly a quarter of U.S. agriculture exports go to China, “including 60% of all soybean exports.”
Bluster or something more?
Talk is cheap. But the president, per U.S. law, has a lot of power of his own to impose protectionist trade measures, such as tariffs, if justified by economic or national security reasons. If Trump’s motives suddenly shift from a negotiating tactic, the markets may become more concerned.
Success or failure in other disputes?
Washington is deep into negotiations on trade with the European Union, as well as Canada and Mexico, the two countries tied to the U.S. via the North American Free Trade Agreement. Any positive developments on the NAFTA negotiations, a trade deal Trump has long said is bad for America, would be a bullish development, Quinlan says.