This Chart Tells the China – US Trade War Best

china-us trade war

At 12:00 PM on January 20th 2017, the 45th President of the United States was sworn in. He lost the election by 2.9 million votes, the largest margin ever by a candidate that went on to win the Presidency (wait, what…? Yep. He lost. But because the US still follows an 18 century law, he got it.)

Among the 12 pledges Trump vowed to work on in his first 100 days of Presidency, three of them (if you’re counting that’s 25% of his pledges) were China-focused. And none Russia-focused.

The three pledges…

(1) Label China as a currency manipulator (Isn’t that everyone?)   

(2) Enforce regulations for China’s unfair subsidy behavior and instruct US trade representatives to bring cases against China both in the US and the WTO (World Trade Organization). And

(3) Use every lawful presidential power to resolve trade disputes via tariffs to stop China’s theft of American intellectual property.
And so on January 22nd, 2018, one year after getting sworn in, Trump upped his rhetoric and tariff languag-ing towards China. Four days later the US stock market started it’s 10% fall (China’s fell 13%) in eight trading days.

Fast forward to today.

Who’s winning? Who has the leverage? And who has more fuel to burn?

If you were to turn to news articles, you’d be better to flip a coin then to really know who’s “winning.”  

Is China winning?

After all, China owns over one trillion dollars of US bonds, they could dump those bonds on the world and immediately spike US interest rates. So is China ahead?

Or maybe its the US. The US ran a $419 billion trade deficit to China last year, so they could place tariffs on their trade and China would be hurt more than the US, as the US sells about ⅕ to China, as they sell to the US.  

But there is a far better way to measure and understand who has the leverage. There’s a seer of everything that can give us a better appreciation of who really has the upper hand.

Who has the leverage?

And so we turn to the four to five hundred million people collectively that vote daily with their wealth on this topic.

I turn to the US stock market, via the S&P500 and the Chinese stock market, via Shanghai Stock Exchange Composite to find the actual score.

And since January 22nd 2018 (16 months ago), when tariffs were threatened by Trump towards China. The US stock market is flat at a 0% return. While the Chinese stock market is down -18%.

As your pattern recognition brain can clearly see in the price chart below, the blue line (US stock market) has a lot more price to burn than the red line (Chinese stock market).

In fact, the US Stock Market has made TWO new lifetime highs in the span of the last 16 months. So not only does the US have the upper hand in the trade wars, they’ve strengthened their position against China. And the stock market knows it.

And then you have the Chinese stock market during the same time, they not only didn’t make two new lifetime highs but made a new four-year low back in January of this year.

The strength sits with the US.

And I believe Trump knows that. I believe just after Trump tweets something he goes to see how the stock market responded. He’s watching how his 140 characters can move a $55 trillion asset class.

He’s the boy king, who can sway lives and livelihoods with the movement of his thumbs.

And so what does this mean for the future of the US stock market and markets around the world?

Having been an Asian Studies major and spending a lot of my 20’s in China and Chinese culture (read: Mainland China, Taiwan, Hong Kong, Singapore), I’ve seen first hand how China disregards intellectual property (IP). Not just US intellectual property but all, Chinese, European, US…

Please remember, intellectual property up until the 1990’s was non-existent in China. China was a closed-off market. In fact the first American joint venture with China was in 1985. And it was between Jeep and the Chinese government. Jeep had to give their IP to the Chinese Government to make the deal go through (this was the topic of my senior thesis in 1993).

So protecting IP (intellectual property) in China is an afterthought at best. It’s changing of course, but slowly.

I’m on the side of Trump from the standpoint of, “stop it.” Stop stealing other people’s intellectual property.

And China is not alone.

The youngest US billionaire ever has a history of stealing other people’s ideas. Is this why she and China have both gotten where they are, and are disliked?

The US has the upper hand. And by a lot.

The US has got the equivalent of 34 gallons of fuel to every one gallon of Chinese fuel. Meaning, the US can make a lot of missteps, but China can’t.

By the way, one of the reasons, the Germans lost the second world war was because the Allies had 34 gallons of fuel to every one gallon the Germans had. And even though German technology was far superior to the allies, they lacked the resources.

Germany’s Panther tanks were five times better than the Allies tanks, the problem. The Allies always had six crappy tanks to one Panther. The Germans could destroy five before their one was blown up. That left the Allies with one tank after each skirmish.

The Chinese are in the same position at the Germans in WWII. And the stock markets know it.

Expect more stock market volatility as the two boy kings (Trump and Xi) go at it. Ultimately, I believe the market resolves higher. But don’t be surprised to see some sideways movement for the next month or so.

The market wants to move higher. It’s begging to move higher. But not before the two biggest man-boys on the block stop fighting.

But that doesn’t mean all is lost.

Tuesday, I had my monthly Bonus Live Q&A with my Fearless Wealth subscribers and Rick, one of our fellow tribe members asked a great question.

Risk asked, What sectors are thriving under the Trade War?

I just loved this question because it presuppose that some part of the stock market is doing well, and is in fact immune or even motivated to move higher with Trade War talks.

Below is a bar chart that I showed my subscribers. The performance of each bar is during the same 16 months of Trade War activity.

Unfortunately I cannot reveal the what the red, blue and violet bars represent as that would not be fair to my paid-up subscribers.

But what I can say is that many were surprised to see which three US sectors were not only immune, but thriving under these Trade Wars.

If you are a paid-up subscriber you can log into the membership hub and watch and listen to this month’s live Q&A to get the answers.

As far as that big black scary looking bar… yep, that’s China’s stock market.

The takeaway…

There is a far better way to understand the market. The markets might be complicated but the solution can be powerfully simple.

The Fearless Wealth Strategy is a way that eliminates the noise. As price determines the news. And price explains the news. And once you learn how to see and listen to what your money is trying to tell you. Everything changes….

…Investment angst disappears.

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…And knowing you’ll have more than enough money. You’ll be okay.

There’s a better way.

And it starts with being part of an Investment Tribe that is committed to a powerfully simple idea.

What is your money trying to tell you?

People have found this video worth their time, it digs into why and how there can be a way that eliminates the noise and give you back your life.

In Your Corner,

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RC Peck, CFP

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  3. The US-Chinese Trade War is spelled out right here, step by step.

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