Last week you saw a subtle shift in the new U.S. protectionism away from the whole world and toward China. President Trump enacted a 25 percent steel tariff and 10 percent aluminum tariff last week. At first the president stated that there would be no exemptions. By the end of the week he had allowed exceptions for U.S. allies. China would get no reprieve. Instead, suggestions emerged from Washington that more painful tariffs may be applied to China on other trade goods.
The threat of a trade war breaking out between the world’s largest and second largest economies is something you should consider in your investments. Such an event would roil world trade and equities markets. Gold offers insurance and protection during market turbulence. This is why you need a Gold IRA. Now would be a good time to start thinking about what gold goes in an IRA.
U.S. Trade Deficit Further Widens
It only added fuel to the fire when the Commerce Department released the January trade deficit figures last Wednesday. The U.S. trade deficit increased by five percent, more than had been expected. It reached a high not seen since the Global Financial Crisis of $56.6 billion, up from $53.9 billion in December. This was the largest trade deficit since October of 2008.
China in particular accounted for a lot of the trade imbalance. Last year the gap in goods exchanged between the U.S. and the Asian county rocketed higher by eight percent to reach an all time high of $375 billion. This explains what Treasury Secretary Steve Mnuchin shared with a congressional panel last Tuesday. He stated that the administration is seeking to attain a trade relationship with China that is both “fair and balanced.”
U.S. Contemplating Widespread Curbs on Chinese Imports
The Chinese were able to brush off the steel and aluminum tariff threat with little difficulty. They do not export much of either metal to the United States. Yet the American administration is looking into significantly more painful restrictions on a wide variety of Chinese exported goods tot he U.S. The justification for this is to punish China for stealing intellectual property.
In only a few weeks, the U.S. Trade Representative office will announce the results of its investigation into the IP practices of China. They will likely recommend countermeasures President Trump’s administration can take then. The president tweeted his urgent concern about the unfair Chinese activities with:
“The U.S. is acting swiftly on intellectual property theft. We cannot allow this to happen as it has for many years! Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”
Prior to this President Trump announced that he had requested the Chinese come up with a plan which will decrease their “massive trade deficit with the United States.” The Chinese are already feeling the pressure. The harshest retaliation the U.S. is contemplating against them includes enacting tariffs on a broad array of imports from China. This might include everything from clothes and shoes to electronics.
The administration has also considered establishing limitations to China’s investments inside the United States. This would be easy to do as the Committee of Foreign Investment in the U.S. already reviews them for any risks to national security. This would take the trade actions against China well past the argument of domestic security.
Chinese Acquisitions in the U.S. Also Threatened
The U.S. is employing its Section 301 action to consider the Chinese behavior. One of the responses the administration is contemplating is to focus on limiting China’s investments in the country. The goal of U.S. officials is to mandate a form of investment reciprocity.
Under such a scenario, America would only permit acquisitions in sectors in which U.S. firms are allowed to participate in China. This chart shows the level of Chinese acquisitions in the United States:
Already Treasury Secretary Mnuchin has pressed for greater scrutiny of U.S. takeovers by foreign companies. Republican congressmen are also advancing legislation to reduce the influence of China. The USTR will announce any further restrictions against China in April.
The US Trade Representative has explained how China operates unethically to gain intellectual property. Chinese organizations have been aggressive in stealing American trade secrets on their quest to evolve into an artificial intelligence and high tech manufacturing powerhouse. Beyond this, American corporations are routinely made to deliver technology to the Chinese as a prerequisite to having access to the important and rapidly growing market.
The price of such strong arming tactics has been high for the United States. In 2017 a U.S. intellectual property independent commission released a yearly cost estimate on trade secrets theft, stolen software, and counterfeit goods. The total amount is greater than $225 billion and might really amount to upwards of $600 billion per year.
China Reacts to Trade War Threats
The Chinese are well aware of the measures proposed against them. They have responded in a variety of tones ranging from concerned to threatening. Last Thursday the Foreign Minister Wang argued that China remains focused on peaceful development. He insisted the U.S. and China must cooperate more fully on problematic topics such as trade.
Wang then went on to deliver what have been the strongest responses from the Middle Kingdom on threatening trade actions:
“China and the U.S. don’t have to be rivals, but can be partners in competition… A trade war is never the right solution. In a globalized world, it is particularly unhelpful, as it will harm both the initiator and the target countries. In the event of a trade war, China will make a justified and necessary response.”
For the diplomatic Chinese, these are real words of warning about retaliation against measures the U.S. takes against them.
The Potential Trade War Threatens Consumers and the Global Economy
A trade war with China threatens American consumers and the global economy alike. Chief Asia Economist Tom Orlik of Bloomberg Economics wrote a warning:
“Gumming up the flow of trade, coming at a time of close to full employment for the U.S., tariffs are more likely to result in higher inflation than higher output. For the U.S., there are plenty of reasons to avoid tipping relations with China into an all-out trade war.”
This is especially the case as the substantial imports that come into the U.S. from China are almost entirely consumer use goods. The biggest imports include phones, computers, clothing, and toys. Tit for tat tariffs will make costs higher for Americans. This could easily harm the important consumer spending that underpins much of the U.S. economy.
Global supply chains would have a very difficult time replacing these goods and other necessary business inputs as well given the sheer volume of the imports from China. Where Chinese exports in a category exceeded $5 billion for the year 2016, over a third of U.S imports came from the country.
Gold Can Help Protect Your Portfolio Against Trade Protectionism
Serious trade threats to the world and U.S. economies can easily impact equities markets. This is why you should invest in gold to protect your retirement portfolio. Gold is a diversification tool with a historical track record of hedging declines in stock and bond markets. It’s a good time to learn more about Gold IRA rollover rules and regulations now.