The truth behind the trade war

The most unwelcome policy has been declared by the US President Donald Trump that has irked many American exporters. China is equally infuriated and vows to ‘punch back’ for revenge. Apparently, the US Government has announced the trade tariffs on US$ 200 billion worth of Chinese goods to be increased to 25 per cent.

Ironically, this could be the ‘decoy move’ to warn the European Unions and India for their same fate if the latter countries do not succumb to Trump’s request on reducing the trade surplus.

Despite Trump’s policy not being well-received throughout allied countries, he has done the correct moves by repatriating the US manufacturers from foreign markets, unwinding the budget deficits by increasing interest rate and reviving trade protectionism to buff up the dollar’s value.

Just when most people reject his unfriendly policy, the recent report on US GDP in the second quarter’s season has grown 4.1 per cent that has thrown many critics off the chair.

If you could revise the economic cycle since 1970s, the eruption of trade war between US and Japan, European Union, Latin America and Gulf countries have always ended up with the rapid escalation of Crude prices. This eventual super inflation would be driven by the dual propelling forces of rising dollar and advancing energies, which had concluded a warfare conflict or a massive crash in global stock markets.

Before the reality comes, most people will presume this may be just a guesswork. When it has materialized, most people could find it too late to exit from their high-priced investment and overleveraged assets. Unfortunately, we reckon this might be the best era for Trump administration to re-run the “trade war strategy” until everything crashes in 12 to 24 months’ time.

When the whole world melts down, who has the best financial infrastructure and technology to make the fastest recovery? Obviously, the first country to recovery and becomes stronger-than-ever after every global market meltdown is always the US economy.

Hence, we reckon the broth is in the cooking cauldron now. With the current strong dollar and stock market advancing, an ideal trade war is punctual to deliver an impact to the developing countries or those who export to US economy.

With the uncompromising sanction imposed on Iran again, what we are anticipating next is the potential rise of Crude prices that will trigger a fictitious heated economy based on forthcoming stagflation.

Watch your savings and put them in good use when you have categorised between short-term and long-term portfolio.

Dar Wong is a registered fund manager in Singapore. The opinions are solely at his own. He can be reached at dar@ pwforex.com.