Trade Tensions Still have the Potential to Disrupt Markets

August 6, 2018
931 Views

International trade tensions between the United States and key trading partners are still impacting global markets.

The White House announced last week that it would be seeking new tariffs for China. Most recently, the German manufacturing sector took a hit due to lowered demand from outside of the Eurozone. Investors who hold American stocks or assets in overseas markets are advised to monitor the situation closely.

What Happened in the German Market?

The Economics Ministry in Germany said in a statement this Monday that gross manufacturing orders had declined by 4.0% compared to the previous month. Although the ministry didn’t lay all the blame on the current trade tensions, they did say in their statement that “Uncertainties from the [United States] trade policy should have played a role.”

The Ministry said that the manufacturing sector had been “weak” in 2018.

Germany has the largest economy in the European Union, and the fourth largest in the world. The country produces much more than it consumes internally and sells more than $1.25 Trillion of goods to export markets. Cars represent 12.5% of all German exports.

President Trump had previously threatened to place heavy tariffs on German cars, which is still a possibility if trade relationships deteriorate in the future.

China Ready for Retaliatory Tariffs

After President Trump announced plans to put more tariffs on Chinese goods last week, the People’s Republic responded with their own threat of $60B worth of tariffs on American products. Larry Kudlow, an economic advisor to the white house, called the Chinese threat a “weak response” to Trump’s proposed $200B.

China responded by saying through state-run newspaper Global Times that “The two numbers, $200B and $60B, don’t show an imbalanced, interdependent economic relationship, but rather that Washington has lost its mind on trade while China retains its rationality. The U.S. is trying to conclude the trade disputes swiftly, but China is prepared for a protracted war.”

Trade Tensions Will Continue Throughout This Year

While trade fears subsided slightly for much of last month, there is now some uncertainty in markets again. The relationship between China and the United States is highly strained, and even the relationship with the European Union is not perfect. Tensions are also high between NAFTA members, with Mexico and Canada implementing and threatening more U.S. tariffs earlier this year.

Investors could ultimately lose out, particularly those with diversified international portfolios or significant interests in agriculture and manufacturing in the United States.

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