Why This Trade War Is a Big Deal for Your Retirement Money

Win/Win or Win/Lose? What is the appropriate answer? It is a commonly asked question in the form of negotiation.

Why This Trade War Is a Big Deal for Your Retirement Money

Win/Win or Win/Lose? What is the appropriate answer? It is a commonly asked question in the form of negotiation. Win/Win is a trait of successful negotiations. In a negotiation, both sides state their position and slowly but surely they meet in the middle for a win/win. Never would a side declare ahead of time that this is a win/lose proposition or the negotiation fails.

If you want a lesson on negotiation, read the Art of the Deal by Donald Trump. He is a master of negotiation in the business world. How does that translate into the world of countries and politics? Well, that is yet to be determined. In business, you can go to war and declare win/lose negotiation and get away with it. Can you do that in politics where the loser has to save face?

From the very beginning, President Trump declared the tariffs placed on goods coming into this country as an "easy" win for the US as well as declaring we would win. Unfortunately, we are dealing with countries who have national pride. Thus, the win/lose doesn't set well. As a result, we go to war... a trade war. Do you really think that President Trump is prepared to lose the trade war in any way? Remember he is about the optics. Do you think that China is going to take the arrogance of the United States and just bow down to President Trump and drastically alter how they are doing trade?

Well, with the number of tariffs that china has issued, I don't think so. This is the downside with a Trump administration. Someone has to win and someone has to lose. Can the United States always win? One of two things will likely happen. Either China gives in and Trump is declared the master of all negotiations or we damage our economy by the unintended consequences of a trade war. Some will say bet on Trump. I would, without hesitation, if we weren't playing with the dangers of politics.

So, why does this effect your retirement money? Well, the stock market is somewhat ok/unsettled by the idea of a trade war. However, it is the unintended consequences that we don't see that might just rock the market and as a result your retirement money. Keep an eye on this one. It is a big potential risk.

Comments
No. 1-4
BobBrooks
BobBrooks

Editor

@phoenix02 - sorry for the late reply. I made an error by not fact checking. Their overall ownership of treasuries has gone down off of that 50% level. Depending on what number you base it on it is 1/4th to 1/3rd. My thought was they could rattle the bond markets a bit to turn up the heat. Of course, even then that depends on their maturity schedule. However, leverage in the bond markets is probably not the case. I should have asked the question - what leverage are you referring to? That could mean a few things. Sorry for the error.

phoenix02
phoenix02

Right, but that wouldn't be a trade war anymore. Last I heard, they had stopped buying our debt. Walk us through what their lender leverage might look like if they decided to flex that muscle.

BobBrooks
BobBrooks

Editor

@phoenix02 - well it is not that cut and dry on the statistics. Consider our debt - The last time I checked they owned a little over 50% of our government bonds - in other words they are the chief lender. They can fight in other ways.

phoenix02
phoenix02

US has a 4 or 5:1 advantage over China due to the imbalance. China has no leverage. How can they even fight a trade war without ammunition?

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