I was listening to a segment from Jim Kramer’s Mad Money the other day as I sifted through investing content for any kind of signal that we’re on our way out of the woods. Kramer talked about U.S. and China trade relations over the years, giving us his perspective on what’s happening and what it could mean for the economy. Then I did a little research myself on the chronology of the U.S. ascension into a lopsided trade deficit.
Starting with around $1 billion worth of imports from China in 1979, several years after Nixon’s visit to China during “the week that changed the world,” our reliance on goods from China progressively increased over the decades. By 1989, we reached $12 billion annually. Imports grew to $82 billion by 1999. The 2000s saw tremendous growth in imports, reaching $338 billion in 2008. We peaked in 2018 with a whopping $539 billion in imports and have since hovered between $400 and $500 billion. The U.S. goods trade deficit with China is around $300 billion today.
Nearly 50 years of U.S. and global policy combined with American consumerism have gotten us to this point with China.
So will U.S. tariffs on China and their reciprocal tariffs result in a reduction of this deficit? Can we truly level the playing field by engaging in a prolonged trade war? Or will we see an implosion where everything gets worse indefinitely before it gets better? It’s hard to know, which is why the market is all over the place. That uncertainty is kryptonite to stocks.
Because of how entrenched we are with China, I’d expect a paradigm shift in trade relations to take more time than we think, which means we’ll likely be in a state of fluctuating uncertainty for awhile. One bright spot is that perhaps we’ve reached peak uncertainty with many countries willing to negotiate except for China—though the volleying with China seems to be hitting a wall. And it doesn’t hurt that we’re also getting some clarity on which products will be taxed and which ones won’t be. But clarity tends to be fleeting these days.
It’s okay to hope that we’ve seen the worst but it’s important to expect that we haven’t. Prepare accordingly for things to continue to be volatile and chaotic for quite some time. Continue to scan the daily UVstock screener for undervalued stock opportunities with strong fundamentals if you’re continuing to dollar cost average. Remember bear markets are when investors make most of their money.
I’ll leave you with this. As I reread Stephen Covey’s The 7 Habits of Highly Effective People, I have a hope that the key players in these global negotiations take more of a win/win approach rather than a win/lose one.
“In the long run, if it isn’t a win for both of us, we both lose. That’s why win-win is the only real alternative in interdependent realities.”— Stephen R. Covey
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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