Every year, clients come to me asking what they should “do” about the global challenge du jour. Of course, at the moment, the trade war with China is grabbing the headlines. As a result, the stock market (which, contrary to how it might seem, is still in bull market territory) is delivering a heavy dose of mind-boggling volatility. It soars one day and tumbles the next, and every move leaves investors scratching their heads and looking for answers.
If you’re wondering what you should “do” to protect your portfolio from the trade war, I have a simple answer. It’s the same one I had about tax reform and the economy in 2018, healthcare in 2017, and trade deficits in 2016. What is my answer? Stick to your strategy and stay the course.
Pithy? Perhaps. But here’s why, even when the circumstances change, my song remains the same:
- A trade deal will come—eventually. Whether or not you’re a nationalist or a globalist, I’m sure you understand the other side’s view. Globalists understand that every government must advocate for its country’s industrial complex. Nationalists understand that no country can build everything it needs to deliver its products to market. These basic understandings are precisely why the markets are currently trading only a few percentage points from their all-time highs. At a high level, the market (which includes market analysts as well as industrial and retail investors) pays much more attention to what it thinks will happen in the future than to what has happened in the past. Today, the market is saying that a trade deal might not come tomorrow, or even this year, but it will come—eventually.
- Trade wars aren’t great for Presidents. Despite the Twitter-based bravado of our current President regarding the trade war with China (and yes, now Mexico, too), trade wars don’t boost popularity for candidates. In the US, the 4-year election cycle tends to swing between the two parties to maintain a moderate democracy. As a rule, trade wars affect both players. No matter how gung ho Trump is about “beating” China in the trade way, he faces re-election next year, and the current administration needs farmers—particularly those in the Upper Midwest—to be excited to vote for their candidate. To be sure that base is secure, all bets are that Trump will do whatever is necessary to make them happy, including changing course on a trade war. Of course, because China’s President Xi can serve as long as he chooses, the Chinese government has the luxury of being able to take an extremely long view when it comes to trade. However, because Xi has built up a lot of momentum with his Made in China 2025 and Belt and Road initiatives, a trade war is not in his best interest either. For both presidents—and both governments—ending the trade war is a plus.
- The journey is long. Today it’s the trade war. Tomorrow it will be something else entirely. Investors can always count on a global challenge to try to push them off course. But while the politicians and the business community may have reason to be very stressed about the trade way, that is because their view, but nature, must be on the short term. For investors, that’s not the case. Wise investors should be looking not at the next 12 months, or even the next 12 years. Looking into the future, history tells us that governments need each other to continue to innovate and grow. That’s true today for the US and China, the world’s two largest economies, and it will likely be true for decades and even centuries to come. As long as you have a carefully designed portfolio—as well as a trusted financial advisor to manage it through each market cycle—there is no reason to be stressed about the short term. The journey is long, and that fact alone plays well for every investor who is wise enough to stick to your strategy and stay the course.
Still concerned about the trade war and its impact on your portfolio? Please reach out. As always, I’m here to help!