Trade Wars to Actual Wars: Here’s what Trump’s first 2 years have brought to global stock markets
Donald Trump will go down in history as one of the most controversial presidents, to ever govern one of the most powerful nations in the world. Two years into his tenure and the self-proclaimed astute and smart businessman has already sent shock waves around the world, a move that has had a severe impact on the global economy.
When Trump steps down from office, trade wars and actual wars are sure to define his tenure in the White House.
From Iraq, to Syria & North Korea
During the campaigns, Trump vehemently took President Barack Obama to task over his handling of the war on terror in Iraq and Afghanistan. He went on to promise complete withdrawal of US Troops from the region as he maintained the unending wars were a burden to the US Economy.
Fast forward to 2018, the Commander in Chief appears to have changed his mind. In a turn of events, the US seems to be ramping up the number of US soldiers in the region, an indication it won’t be pulling out any time soon.
Even before the dust of war in Iraq and Afghanistan had settled down, the US has already gotten its hands dirty in Syria. Spiraling tensions between the US and Syria, which is backed by Russia, is already threatening to plunge the US and its allies into a full-blown war.
Unlike during the Obama tenure, the US had no direct participation in Syria’s conflict. Things have since changed, the US having increased its involvement in the conflict backed by the UK and France.
For the first time, the US and its allies started air strikes on Syria, in direct response to President Bashar al-Assad’s continued use of chemical weapons against rebels and civilians. With Russia vehemently supporting Assad, it appears it could be only a matter of time before Trump fuels war in the region.
North Korea is another headache that has clobbered the Trump administration right from the beginning. At the time when Trump was taking over, North Korea president Kim Jong Un had made it clear his intention to develop nuclear warheads able to reach the US.
Tensions at one point reached fever pitch, with the US and its allies forced to deploy nuclear submarines and warships close to the rogue nation. Fast forward tensions have eased, North Korea having agreed to come to the table, to negotiate on the way forward.
The outcome of a planned summit between President Trump and Kim Jong Un will have a massive say on whether the US and North Korea can bury the hatchet and find a way out of the Nuclear weapons standoff. Failure to reach an agreement could see tensions spiking high, of which a spill off could trigger a brutal war involving nuclear warheads.
Market impact and investment opportunities from the fray
Concerns about the US going to war with either North Korea or Russia in Syria has had a catastrophic impact on markets. Such concerns have triggered fear among investors fuelling sell-off of stocks as well as currencies that people believe would be significantly affected.
For instance, the dollar index – which measures the strength of the U.S dollar against a basket of other major currencies – has since dropped from record highs of 103 during the Obama era, to current lows of 90 as investors switched to other safe haven investments. However, stocks of companies that make weapons have enjoyed an impressive run, given that they stand to be one of the biggest gainers of the US going to war.
Sparking Trade Wars
Even before the dust on actual wars settled, the US appears to be preparing for one of its biggest fights in the name of ‘trade wars’. Trump’s move to impose a 25% increase in steel imports tariff and a 10% increase in aluminium, is the latest headache sending jitters in the markets
By imposing the duties, Trump has officially declared a trade war with some of the biggest exporters of the two commodities.
Trump has never hidden his anger for China which he says has always taken the US for granted when it comes to trade. A massive trading deficit of US$375 billion with China as of the end of last year is believed to be the catalyst behind the new tariffs.
China has already responded to the new tariffs, imposing a 25% tariff on Pork from the US. The increase came at a time when the US exports to the country had reached all-time seasonal high. There are already concerns that the tariff hike could cause US meat supplies to back up meaningfully, which could cause pork prices to fall and drag prices of chicken and beef as well.
China is not the only country to respond to the new US tariffs on steel and aluminium imports. The E.U has warned that it could be forced to levy 25% tariffs on American goods. Trump has since hit back by stating he will impose a 25% tax levy on European car imports.
No Winners In a Trade War
If history is any indicator, then it is important to remember no one wins in trade wars. In 2002, George W. Bush increased steel tariffs resulting in the loss of US$30.4 million in US Gross domestic product. The US also lost 200,000 jobs of which 13,000 were in the steelmaking business.
The biggest concern now is Trump taking trade wars too far, to a point where more countries are forced to retaliate. Such a response would be bad for the global economy.
Immediately after the new steel tariffs were confirmed, key stock indices in the US came tumbling, an indication of how the global economy remains well connected. The Dow lost nearly 400 points underscoring the potential impact of trade wars escalation. Tech companies were the most affected as the likes of Apple, Amazon and Google stocks lost a substantial amount of market value.
The impact of trade wars – just like actual wars – will be felt on all fronts. US companies that source for raw materials from China will be the hardest hit. Those who make large amounts of sales to China like Caterpillar and Starbucks will also feel the full effects.
Sectors that are likely to benefit immensely by the escalation of trade wars are aerospace and defence, though indices with stocks of companies that have a considerable presence on the global markets would also suffer a great deal as a result.
Safe havens like gold and the Japanese yen, on the other hand, are expected to benefit from the uncertainty.