We humans don’t like change. When change comes slowly, we learn to accept it. When change happens quickly, without our understanding of what the change portends, we become worried. The anxiety we feel results in a seeming lack of direction. If we know “what the deal is”, we can take measures to assimilate the change. Currently, our society is going through a number of changes, resulting in a disruption of the status quo.
One of the current disruptions is President Trump’s placement of new tariffs. These tariffs have alienated some of the United States’ closest allies. Tariffs have also angered one of our largest trading partners, China. We now have a situation in which many countries see the United States in a bad light and are responding with tariffs of their own. This may bring about a trade war in which no country will be a winner.
The fear of trade wars is not lost on stock and bond markets worldwide. The actions of the United States have resulted in a reduction of growth in Europe and may soon result in a slowing of growth in the U.S. In general, businesses can set a course of action once they understand the implications of a government policy. In this case, it is proving hard to determine where this policy decision is taking the world.
Over the past year and a half, the U.S. economy has been doing well. We have virtual full employment, the consumer is back to spending, corporate profits have been growing, and capital expenditures have reached new highs. All of this is fragile. Up until recently, the global economy had begun to grow, which would be healthy for the U.S. and for the rest of the world. Now this too is in jeopardy. Without a doubt, the tariffs are going to add to the volatility we’ve seen in the markets this year. Once again, I believe, diversification of investments will prove beneficial.
June 25, 2018