China and America May Be Forging a New Economic Order

China and America May Be Forging a New Economic Order
US trade war with China could last 20 YEARS – shock warning
Walmart, the largest US retailer, is sounding the alarm on President Donald Trumps trade war, saying it is “very concerned” about the impacts the newly announced tariffs may have on American consumers.

In a letter to US Trade Representative Robert Lighthizer seen by Business Insider, the company — which employs 2.3 million people worldwide, including 1.5 million in the US — said the immediate impact of the fresh tariffs “will be to raise prices on consumers and tax American business and manufacturers.”

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“As the largest retailer in the United States and a major buyer of U.S. manufactured goods, we are very concerned about the impacts these tariffs would have on our business, our customers, our suppliers and the U.S. economy as a whole,” Walmart wrote.

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The letter — sent about two weeks ago — Walmart asked Lighthizer and the Trump administration to reconsider putting tariffs on Chinese-made consumer goods including Christmas lights, shampoo, dog food, luggage, mattresses, handbags, backpacks, vacuum cleaners, bicycles, cooking grills, cable cords, and air conditioners.

The letter did not achieve that goal, with the administration pushing forward earlier this week with the imposition of tariffs on $200 billion worth of Chinese goods, affecting more than 5,000 products. When those tariffs are implemented, tariffs, which function as taxes, will have been imposed on roughly half of US imports from China as part of the Trump administrations move to pressure China into changing some of its trade practices.

“For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies,” Trump said in a statement on Monday.

“We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.”

He added: “As president, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself.”

In its letter, Walmart also warned of the ways businesses could deal with the tariffs. It is effectively a choice between increasing prices for customers or taking a hit to their profits by absorbing the increased costs themselves.

“Either consumers will pay more, suppliers will receive less, retail margins will be lower, or consumers will buy fewer products or forego purchases altogether,” Walmart said.

Stock prices suffered for months amid investors worries about higher interest rates and President Donald Trumps trade war with China and others. But now another record high seems inevitable as the Dow Jones industrials index pushes back toward its January peak, passing the 26,600 threshold Thursday, and the broader S&P 500 index also above the record heights it reached last month.  

Video: China Rushes Exports to U.S. Before Trump Tariffs Kick In

And although the trade issues continue to boil — including Mr. Trumps imposition this week of fresh tariffs on $200 billion worth of Chinese imports — investors seem just fine looking past them to bid up prices. Why?

One of the most striking characteristics of the markets recent rise has been how it stands in opposition to the weakness seen in other markets. From Germany to China, stock markets in both developed and emerging economies have been struggling.

Its easy to see why the U.S. has gone the other way: Fueled by last years tax cuts and a ballooning federal deficit, U.S. GDP growth is tracking at a 4.4 percent annual rate for the current quarter following a 4.2 percent performance last quarter. Corporate profitability is strong. And consumer confidence is high.

Maybe trade wars really are “easy to win” after all. Or at least so far, things are proceeding smoothly.

Thus, the SPDR World ex-US ETF, an exchange-traded fund that tracks the performance of developed market stocks outside the U.S., is still down nearly 8 percent from its January high while U.S. stocks are on the verge of new all-time highs.

Money managers are on the scent. Bank of America Merrill Lynchs latest fund manager survey shows a multiyear preference for U.S. equities amid an economic and market performance thats “decoupling” from the rest of the world. Managers are allocating money to U.S. stocks within their portfolios at levels not seen since January 2015. The U.S. is now the most favored equity region globally for the second month running.

When fund managers were asked about their regional expectations for corporate profits, a net 69 percent said the U.S. was tops. Thats a record 17-year high. 

Digging in to the data, managers are keeping a specific focus within U.S. markets on the “FAANG” mega-cap technology stocks — although that can really be narrowed down to “AA” for Apple and Amazon recently, given the underperformance of Facebook, Netflix and Google parent Alphabet.

The team at Merrill Lynch dub this dynamic “splendid isolation” amid buoyant U.S. markets. The chart above shows how despite rising U.S. trade policy uncertainty, global financial stress remains stable.  

Yet the risk remains that the trade situation spirals downward from here and eventually becomes a drag on U.S. growth and corporate profitability. 

Thats especially a worry with the tariff rate on the latest $200 billion in Chinese imports set to grow from 10 percent now to 25 percent in January. Mr. Trump is also threatening another round of tariffs on the remaining $267 billion of Chinese imports if Beijing takes retaliatory action. And Beijing has vowed to do just that.

Its unclear if the president considers Chinas latest response, a tariff on $60 billion worth of U.S. goods at a 5 percent to 10 percent rate, as a triggering action.

Goldman Sachs doesnt expect an agreement between the U.S. and China that could reverse these actions until after the midterm elections on Nov. 6. And it expects Mr. Trump will indeed launch another round of tariffs within the next few weeks to take effect in early 2019, raising the stakes for a potential meeting between the U.S. president and Chinese President Xi Jinping at the G-20 meeting scheduled for Nov. 30.

UBS strategists believe Americas bull market should last awhile longer amid continuing strong economic activity and a robust labor market. But that assumes additional tariffs, rapid wage hikes and faster inflation dont materialize. 

Capital Economics, however, warns that the current market rally is merely a lull in the storm ahead of more aggressive U.S. trade action not only against China but others, including the European Union.

Indeed, earlier this week Mr. Trump asserted that the U.S. is being “ripped off” by the Europeans as well as China. If so, trade-sensitive stocks like Caterpillar and Boeing will be vulnerable. 

Anthony Mirhaydari is founder of the Edge , an investment advisory newsletter, and Edge Pro, options newsletter. Previously, he was a markets columnist for MSN Money; a senior research analyst with Markman Capital Insight, a money management firm; and an analyst with Moss Adams focusing on the financial services industry.

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