Investors have no doubt heard about the trade tensions between the U.S. and China. Both
countries are locked in a power struggle as they impose new tariffs on goods imported
into their countries. But determining exactly what a trade war between the U.S. and China
means for the stock market or either country's economy, is difficult to predict. To understand
its significance, it's worth taking a closer look at what the U.S. and China are fighting
about and whether or not it should change your current investing strategy.
So, why are the U.S. and China imposing new tariffs on each other? Back in 2017,
the U.S. began looking at China's trade policies and decided that the deficit between the amount
of goods coming into the U.S. from China compared to the amount being exported to China was
too great. The U.S. government then imposed billions of dollars in tariffs on some Chinese
goods coming into the U.S. In return, China issued its own round of tariffs on some U.S. imports.
The two countries have held talks trying to resolve trade tensions,
but they haven't resolved it in any long-term trade solutions.
So, why exactly does this trade war matter to investors? When new tariffs are applied
to products, it's not the countries that actually pay for them. The companies that sell the
products pay the additional costs upfront, and then they usually pass the expense onto
their customers. For example, prices on some electronics that are manufactured in China
and then exported to the U.S. could rise as a result of the tariffs, which could cause
certain device prices to rise. If that happens, sales from the U.S. tech companies could fall.
Not only that, but the higher cost of devices would likely cause Americans to curb their spending.
Rising tariffs on U.S. goods being exported to China means that companies in
that country could increase their prices as well, and Chinese consumers could suffer in
the same way that U.S. consumers are. China and the U.S. have two of the biggest
economies in the world, and the International Monetary Fund has warned that an all-out trade
war between them could hurt the global economy. Because of this, trade war tensions between
the U.S. and China have caused some volatility in the stock market.
But that doesn't mean that investors should panic and sell their stocks. The trade negotiations
aren't finished yet, which means that selling stocks before any trade deals are made is
just selling based on fear. Keep in mind that over the long term, the stock market has produced
some strong returns, even in the face of wars, depressions, recessions, and other negative events.
In fact, the current trade war is actually creating some new investing opportunities.
As investors flee the market, it's pushing some share prices down and allowing savvy
investors to snatch up companies at bargain prices.
There's still a lot of uncertainty about what will happen with the U.S. and China trade
negotiations, but the one thing that investors should remember is that for the most part,
it's best to stay the course with their investments and be on the lookout for bargains.
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