Continuing Deterioration of Relations With China Could Worsen the Coming Financial Crisis

For anyone hoping for a restoration of normal trade relations between China and the United States, last week’s Bloomberg report on Chinese government hardware hacking came as a devastating blow. If the allegations are true that Chinese spies managed covertly and surreptitiously to place microchips into servers used by Amazon, Apple, and other large American corporations, that will just provide more ammunition for the Trump administration to maintain its current position towards China or even to enact more tariffs and sanctions.

The existing trade spat has already brought trade in certain sectors to a near standstill. American exports of oil to China had been increasing exponentially in recent years, helped by a shale oil boom that has pushed the United States into position as the world’s number one oil producer. Those exports have now fallen precipitously. And with US refineries largely unable to refine the heavy, sour crude produced from shale, the oil glut in this country may grow worse, meaning that US oil producers may not be able to take advantage of rising global oil prices.

Similarly, China was the largest consumer of US soybean exports but has now broken its reliance on the US by importing more soybeans from South America. While the Trump administration is using taxpayer money to subsidize America farmers’ losses, that’s not something that can or should occur indefinitely.

With trade relations already having taken a hit, the latest revelations aren’t going to lead to any improvement. And given the fact that many market observers are predicting a crash in the next year or two, the timing of this breakdown in trade couldn’t be worse. Less trade and higher prices aren’t good for consumers when things are good, but they’re especially not good when economic conditions get bad.

History has an unfortunate tendency of repeating itself, and it looks like we’re about to repeat the 1930s all over again. The Great Depression was exacerbated by the breakdown of world trade that occurred as a result of the Smoot-Hawley tariff and the retaliatory tariff cycle that ensued. If we’re headed towards something like that again, things could get very bad for investors.

That’s why it’s important for investors to take the right steps now to protect their assets from declining value. Stocks may be flying high today and your 401(k) or IRA may look flush, but that won’t last forever. Unless you start protecting your assets today, like by investing in gold, your investment and retirement portfolio could end up taking a major hit.