(Trade) War, What Is It Good For?


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What's going on?

Despite data released on Friday that showed the US economy’s in pretty good health, stocks dropped on Monday. Why? Trade war, probably.

What does this mean?

US industrial production (think: auto manufacturing and other machinery made in factories) increased by 0.4% in August compared to July (despite there being more industrial activity in July than previously thought) – which was higher than economists had forecast.

On the other hand, American shoppers tightened their purse strings more than predicted in August. Growth in “core” retail sales (excluding things like cars and gasoline, since their prices can swing dramatically in a short period) was just 0.1% higher than in July, compared to expectations of 0.4%. But, as with industrial activity, July was a better retail sales month on second look than previously thought. Overall, the US is lookin’ fiiine.

Why should I care?

For markets: Markets likely fell by the sword of trade war.

Although the US invited China back to the negotiating table on trade last week, investors might be worried that it’ll be all talk and no action between the pair. The US has announced plans to impose 10% import taxes (a.k.a. tariffs) on $200 billion worth of Chinese goods. This could put pressure on China to agree to a deal. But it’s also likely spark more tit for tat play from China – it’s responded with its own tariffs against the US in the past. Tariffs would also likely dent companies’ profits because it would cost them more to shift products across borders – perhaps leading investors to sell stocks in several major markets around the world.

The bigger picture: Nothing’s ever promised tomorrow, today.

Since the US economy’s largely motoring along, demand for products is likely to rise – and with it, their prices (a.k.a. inflation). To keep price rises in check (somewhere around 2% rather than Turkey’s 18%), most investors expect the US Federal Reserve to raise interest rates twice more this year – increasing the cost of borrowing, and therefore discouraging spending.

Originally posted as part of the Finimize daily email.

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