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U.S.-China Trade War: Are We There Yet?

Wells Fargo Investment Institute - August 2018

While the risks are rising, Wells Fargo Investment Institute does not believe that we are in a trade war yet. In this month’s investment outlook video, Peter Donisanu, Investment Strategy Analyst, explains what a trade war could look like—and what investors should keep an eye on. 

Transcript: U.S.-China Trade War: Are We There Yet?

Title graphic: Are we there yet?

The threat of a trade war between the U.S. and China increased last month. This happened because the U.S. government again raised tariffs on some Chinese goods and threatened to raise tariffs on even more goods. Some trade watchers have pointed to this development as evidence of a trade war. But, while the risks are rising, we do not believe that we are in a trade war yet. In fact, global trade volumes have moved higher in recent months despite ongoing concerns.
What could a trade war look like? We believe that a U.S.-China trade war would likely be characterized by tariffs exceeding 50% applied to a broad range of goods and sectors of trade. From this perspective, we believe that the likelihood of the U.S. and China resolving their trade concerns is greater than that of both countries moving toward a genuine trade war.
Title graphic: What are some of the things that we’re watching?
Whether likely or not, trade related headlines have still contributed to swings in market prices. In other words, the perceptions of a trade war have mattered a great deal to the markets. If perceptions matter so much, what then should investors keep an eye on?

We believe that tracking developments in trade policies, negotiations and leading indicators of economic growth can help investors get a better feel for whether the sum of trade related risks are likely to overwhelm market sentiment and drag down the economy.

Title graphic: How are those factors progressing?
As of this recording, our latest readings are showing that market related risks have eased from very tense levels at the beginning of July. We believe that constructive negotiations will hold the key to resolving trade related market concerns. To this point, the U.S. President’s move to engage the European Union in broad trade dialog and restart talks on the North American Free Trade Agreement are two positive developments.
Broadly speaking, we believe that trade related risks will remain contained so long as constructive dialog remains a priority among trading partners. 
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