While two of the world’s largest economies escalate a trade war, investors don't seem terribly worried. In fact, they don’t seem bothered by it at all.
That’s probably because markets have been flooded by similar news for weeks now.
Granted, the Trump Administration is moving ahead with a 25% tariff on $50 billion of Chinese goods, provoking what could be a rough trade war.
“Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable,” noted President Trump. “China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology. These practices, documented in an extensive report published by the United States Trade Representative (USTR) on March 22, 2018, harm our economic and national security and deepen our already massive trade imbalance with China.”
And in response, China is firing back, noting it “will immediately launch tariff measures that will match the scale and intensity of those launched by the United States.”
In fact, starting July 6, 2018, China will slap a 25% tariff on 545 products from the U.S., including soybeans, electric cars, orange juice, whiskey, salmon and cigars, said the Ministry of Finance. They’re also scrapping a deal to buy more American farm goods, natural gas, crude oil and many other energy products.
And while the news of a trade war initially sent tension throughout the financial world, it was shrugged off not long after.
"The market has done a good job of whistling past the graveyard when it comes to trade policy," said Art Hogan, chief market strategist at B. Riley FBR, as quoted by CNBC. "The market has come back to think we'll probably get some sort of negotiation done."
You’d think that an intensifying trade war – with the potential for economic fallout -- would spook markets and send the Dow Jones tumbling hundreds of points. But that hasn’t happened simply because investors have heard about it ad nauseam.
We’d use any market weakness as a reason to buy stocks, especially as the underlying fundamentals of the U.S. economy continue to improve.
Stay tuned to The Cheap Investor for more on this issue.