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US Isolationism and Your Investments

The South China Morning Post reported the signing of the Regional Comprehensive Economic Partnership that includes China and most of its Asian neighbors. This deal includes Japan, Australia, New Zealand, and South Korea but not the USA. The new trade deal will lower tariffs and aims to increase regional trade with less red tape. Post-pandemic growth is expected to benefit in the region. Not only is the USA not part of this deal but it is also not part of the Transpacific Partnership which the Obama administration helped develop and Trump pulled out of. Here are some thoughts about US isolationism and your investments.

Protectionism and Your Investments

Protectionism, according to Investopedia, is when a government restricts international trade. The goal of protectionism is typically to stimulate economic activity in the county. However, it can also be instituted for reasons of safety, quality, and geopolitical concerns. As with the trade war started by Donald Trump, tariffs and import quotas are common tools. The infamous Smoot-Hawley Tariff Act in the 1930s was meant to protect US industry but initiated a trade war that was partly responsible for the depth and length of the Great Depression. Protectionism is often driven by a desire for isolationism. A country and its people feel threatened by foreign competition. The Trump trade war played on a belief that foreigners were taking advantage of the USA and that the USA had to close its borders to trade or hike up tariffs to protect itself. The result so far appears to be an exclusion of the USA from two important markets at a time when China and other Asian markets are expanding. How should you invest when US companies will find it more difficult to compete in a third of the economies of the world?

Investing from an Isolated Country

If you want to invest where there is more economic activity, you may need to invest abroad instead of in the USA. This means investing in foreign stocks. But, if laws like the Kennedy Act take hold, investing in China will be more and more difficult. The targeted decoupling from China will become a greater and greater issue going forward. However, you can invest in companies that do business in other nations in the Asian Pacific. These companies will likely benefit from trade deals from which the USA is currently excluded. ETF Trends writes about investments from abroad. As they note, the USA is about 25% of the world market and that percentage may well decline as other economies advance and the US stagnates in isolationism. Luckily, you do not need to speak a foreign language or deal with a stock broker in a foreign country in order to invest in foreign markets. You can choose investment funds that track offshore investments and you can purchase ADRs (American Depositary Receipts) of foreign stocks listed in US stock exchanges.

A good resource for checking out ADRs is the website TopForeignStocks.com. The ADR listings are grouped according to economic region and then by country. US News has a nice listing of ETFs with an international focus, low costs, diversified, and meant for safe long term investing.

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