The president stated recently that there is a partial deal in the works to advance talks in the trade war between the USA and China. Part of our speculation as this story has played out is about what investments will do well when the trade war is resolved. In that regard, Apple rose to an all-time high on the news. Will there be a trade war peace dividend? If so, this is the time to jump in with both feet. Or, is this just more posturing with a permanent trade war the more likely course?
Will There Be a Trade War Peace Dividend?
Bloomberg notes that a potential trade thaw sent stocks up.
Signs of progress in U.S.-China trade talks sent stocks to the biggest gain in a week and had Wall Street handicappers making odds on a bigger rally to come.
The S&P 500 Index climbed to within 1.8% of a record after President Donald Trump said the two sides agreed to the outlines of a deal that could be signed as early as next month. The equity benchmark rose 1.1% Friday, closing off its session highs since several of the thorniest trade problems remain unresolved. Equities also got a boost from signs of progress in Brexit negotiations.
At JPMorgan Chase & Co., strategists led by John Normand estimated there is 10% upside or more in the stock market under a “blue sky” scenario where agreements are reached in both cases, based on the way past geopolitical crises played out.
Is There Likely to Be a Trade Thaw?
We have been writing about this issue ever since Trump started the trade wars with China and everyone else. And, we have noted that the issues go a lot deeper than the balance of trade. The USA does not want to lose global technological and economic leadership and China wants to displace the USA at the top. A core issue is the intent of the Chinese Communist Party to stay in control and direct the economy instead of letting a true market-driven economy develop. The demands of Chinese companies for technology transfers as the price of access to their markets are a key issue.
To the extent that a partial trade deal addresses these key issues, it is possible that a trade thaw will happen. Trump needs some sort of deal going into the 2020 election. And, the deal will need to benefit his supporters! The Chinese are watching their economy slow down and trade suffer. They need help before they replicate the collapse of the Japanese economic miracle of the 1980s.
How Will a Trade Thaw Help Your Investments?
Investors do not like uncertainty. When Iran hijacks tankers in the Persian Gulf, Great Britain does not manage a clean break with the EU; and China is in a trade war with its biggest customer, nobody is happy. The prospect of a trade war truce sends stocks like Apple upward. Apple sells millions of iPhones to the Chinese. Boeing should prosper as well as this growing market is not shut off to them.
Looking into the future, more important aspects of a trade war deal emerge. If more foreign investment in China is allowed, forced technology transfers go away, and China buys more from the USA, all of these will drive investments and send stock prices up. However, we will need to see the details of any deal before it will be clear what investment opportunities will arise.