Why It Won’t Be Just a Trade War…

A trade war hasn’t quite started yet, but it’s already escalating in terms of threats, counterthreats and rampant chestpounding.

A trade war hasn’t quite started yet, but it’s already escalating in terms of threats, counterthreats and rampant chestpounding.

In retaliation for President Donald Trump’s promise last week to impose stiff tariffs on imported steel and aluminum, the European Union threatened to slap tariffs on a whole series of U.S. products, from Harley-Davidsons to Kentucky bourbon.

The president shot back that he might retaliate with tariffs on imported cars.

And now they’re at each other’s throats again, this time with the European Union throwing the blows across the Atlantic.

The EU announced on Wednesday it’s going to take the case to the World Trade Organization.

It’s going to throw up defenses to protect the European Union against steel diverted from the United States. (It’s unclear exactly what it means by that.)

And it’s going to impose tariffs on a whole series of American-made goods.

It seems last week the list of U.S. goods in its crosshairs was pretty short. Harley-Davidsons, Kentucky bourbon and the like.

Now it’s getting a lot longer. Steel. T-shirts. Bed linen. Chewing tobacco. Cranberries. Orange juice. And many more.

It’s still only $3.5 billion in trade, which is a fraction of cross-Atlantic trade. But the number is growing.

Just the Beginning of a Trade War

Brazil, Canada, Japan, South Korea and other major U.S. allies could soon follow with similar tariffs.

And those are just America’s allies.

China and Russia may not say much initially. But don’t let that fool you. The longer they wait, the more serious their reaction is likely to be.

What does that do to stocks?

Wall Street pundits are virtually unanimous in their verdict: It’s not good for the economy, profits and investors. That’s why the market tumbled late last week.

And the only reason it recovered this week is because Wall Street hoped that maybe Trump might back down at the last minute.

I don’t always agree with Wall Street pundits. And sometimes I vehemently disagree.

But this is not one of those cases.

No matter how you slice and dice the data, it’s almost impossible to chart a roadmap that takes trade wars to a good place. Even if the United States ultimately wins the war.

It could be a barroom brawl that never ends. The cowboys punch and counterpunch all night long until they’re all sprawled out on the floor, practically dead to the world.

1 More Kind of War

You remember the last time the stock market plunged earlier this year. I know. How could anyone forget?

And I assume you also remember what triggered it: Falling bond prices, and the fear of rising interest rates.

Well, a trade war is, in its initial stages at least, inflationary because it drives up import prices. That isn’t going to make the threat of higher interest rates go away. It’s going to make it worse.

What’s more, while nations are already in the mood to throw bricks at each other, another weapon they could pull out from their arsenal is competitive interest-rate hikes. A rate war!

Country A wants to attract scarce short-term foreign money. So, it hikes its lending rates.

Country B wants to keep that money within its borders or go after new money in global money markets. So, it hikes its lending rates even more.

Before you know it, interest rates are leapfrogging each other all over the globe.

How Trade Wars Hit Stocks

There is a long list of stocks vulnerable to trade wars.

Ford Motor Co. (NYSE: F), which was already hurting due to earnings disappointments, is feeling the pain. And General Motors Co. (NYSE: GM) is trading at its lowest level since last September.

But the victims are not just companies that consume steel or aluminum. Any U.S.-based multinational that relies on exports could be in deep doo-doo during an all-out trade war.

Plus, there’s an even longer list of companies vulnerable to interest-rate wars.

Shares of homebuilders, real estate investment trusts (REITs) and mortgage lenders are already sinking.

Lennar Corp. (NYSE: LEN), for example, has just sunk from around $72 per share to the high 50s today.

D.R. Horton Inc. (NYSE: DHI) is down from $53 and change to $43 and change today.

And these 20%-plus declines are just since the beginning of the year!

Don’t be surprised if big banks get slammed next.

Good thing our Money and Markets editors are sticking with companies that can continue to deliver big profits despite any trade war, including alternative investments that benefit from most of these trends.

Like gold, silver, energy and energy metals.

Even cryptocurrencies.

See you next week!

Good luck, and God bless!

Martin D. Weiss, Ph.D.

Founder, Weiss Ratings

19 comments

The trade imbalance with other countries is huge. A deficit means that there is a transfer of wealth; the wealth goes from this country to wherever. We lose; they win. Eventually we’ll run out of wealth, the way Spain did after it spent all the gold and silver they grabbed from their colonies in the Americas.

On another topic, we need a steel industry and an aluminum industry if we ever get into a war. We cannot be sure we will be able to import that stuff from Canada or Mexico during any emergency. Who can be sure that there won’t be one or two or three in the future??????

Going to war! What has the U.S. been doing for the past 16 years. The U.S. is now involved in, at least, six conflicts around the world. No shortage of steel or aluminum here.

The last, genuine war……i.e. declared/ratified by proper constitutional definition …..was WW2 I believe. Since then, the rest are skirmishes-however protracted- that really are problems of adjoining nations or regions….OR perhaps US corporation revenue/profitability threats, but certainly NOT a domestic, national danger. We foolishly agree to wage battle everywhere else in the name of democracy and….wait for it……peace!! And all those skirmishes seem to be the other side of the globe….(excepting those amerikkaners that believe the world is flat and other countries are nearby….)

We’re all gonna die!*!*!*!*! So tired of seemingly everybody running off their mouth these days. Hey, I’ve got a suggestion for all you ‘experts’. Pray for your President and America. The US has been getting hosed forever re trade etc. Trump is the only one with the guts to step forward to do anything about it. If we don’t have a vibrant steel industry, and we keep giving away our wealth as a country, we’re finished anyway. Our President’s playing hardball right now for our own good. We all need to **** it up, and support our nation vs our own greedy little bottom line for the moment. If we do, Trump will get the job finished sooner with more positive results. As a dear friend/business associate once told me ‘Nobody Knows Nothin’! It’s true. All the market ‘experts & pundits’ know little to nothing it seems (especially lately as they’ve been wrong time and again).

wow….speaking of the most appropriate adage, now recently served with gravitas: you dont know what you dont know…… Prayer-as called for by you- is the critical realization that any/all human effort does not answer the woes extant….only divine help can solve. Which defines hopelessness, i posit. So why do you have such verification of Trump success? I am not willing to **** up ANY bad bathwater as both partisan members regularly banter, and then make big/more money from “election contributions, Pac $$”, and INSIDER TRADING privileges…
It’s possible you cannot distinguish hardball from nutball, but fear not-you are enjoined by at least half this country.
Vibrant steel, aluminum, iron, most manu’s etc. industries got gutted by crooked union officials in collusion with political operatives and CEOs……as well as profit frontier decisions re: offshore labor costs…. that everybody did/would have taken advantage of. Remember that squeaky-voiced potus candidate some 20-25 years ago…..claiming that “big sucking sound…all that business leaving this country”………?? I do….

Don’t flatter yourself pal… I was directing my response to Mr Weiss & other ‘pundits in the financial sector. I could care less about what you think. Maybe Soros has an opening for you in one of his various social media globalist echo chambers he controls…

wow again. Pretty sure you live in Idaho panhandle, or semi-deep mid-south….texoklabamarkas? gonna send you a case of tin-foil hats with cross/Christ printed on front. Might sooth the beast….within.

This site is one of the few places where folks with similar and/or different views can express them in a rational manner. I hope things stay civil and productive.

it’s nothing to do with the ( truly…) beautiful Idaho as a state…or any other wondrous state. It is about the concentration of polemics extant in the demographics of that (panhandle.._) sub-region. Do some research into those metrics/political identities….then perhaps my “disdain” would have some logic. Also suggest you read Ambrose Bierce –from over 100 years ago– w/r/t the abdication of individual responsibility and the easier default of throwing all our woes at some conceptual God…….with, once again, a plea for prayer to fix all human stupid decisions. i posit that he/she is really busy lately handling all these skirmishes all over the globe. And any cursory longitudinal review of recorded history will show more people-across centuries- have been killed by others in the name of God. Seems ironic, paradoxical…or something???

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