Will the Never-Ending Trade War Be the Ultimate Undoing of Stock Markets?

There has been a lot of criticism of stock markets this year, particularly when the Dow Jones and the S&P 500 reach new highs based solely on expectations of a resolution of the trade war with China. It seems that every time President Trump, or anyone in the administration, gets in front of the cameras to say that a trade deal is coming soon, stock markets jump a few hundred points. But now we’re seeing the flip side, that when Trump gets pessimistic stock markets fall. When reality sets in that we’re nowhere near a trade deal, will that be the straw that breaks the camel’s back and causes stock markets to plummet?

President Trump announced yesterday that he might consider waiting until after 2020 to make a trade deal with China, after which stock markets tumbled several hundred points. Trump doubled down, calling that drop “peanuts” and claiming that he wouldn’t let falling stock markets get in the way of making a deal with China. But there’s every indication that China won’t make a trade deal easy, nor is China the only country with which Trump might involve himself in a trade war.

There are reports that the Chinese government is preparing a blacklist of US companies that would be regarded as “unreliable entities.” What exactly that would mean is unclear, but at the very least it would mean that those companies would see dramatically curtailed operations in China, if not an outright ban on doing business. That’s hardly what one would expect to see happen if negotiations really were on the right track.

All of this is occurring as the US is set to allow the full set of tariffs on Chinese imports to go into effect on December 15. Barring a last minute deferral, in a little over a week every item imported from China is set to be subject to tariffs. That means an immediate 15% tariff on every Chinese import that hadn’t previously been subject to tariffs. That will both drive up prices for US consumers and dampen demand for Chinese products, again something that isn’t conducive to ending the trade war.

Then you have President Trump’s comments about placing 100% tariffs on billions of dollars worth of imports from France in retaliation for France’s digital services tax on US companies. Should that flare up into another tariff war, it would just be the latest front in a tariff spree that has also seen tariffs reinstated on imports of steel and aluminum from Brazil and Argentina.

In short, the outlook on trade doesn’t look good. The sooner stock markets realize that talk is cheap and that positive spin on trade negotiations is just spin, the sooner stocks will correct back to more realistic levels. But that means that investors who are banking on continued stock market gains will lose out during the decline.

That’s why it’s more important than ever to diversify your portfolio and protect your assets with gold. Not only has gold outperformed stock markets over the past 20 years, it is also the best way to safeguard your retirement savings during times of economic turmoil. With all signs pointing to a long, drawn-out trade war, investors who want to maintain their wealth over the long term need to look at investing in gold to keep their investments safe and secure.