Wall Street and The New Cold War

The comments below are an edited and abridged synopsis of an article by James Rickards

When Trump threatens new tariffs and China threatens to retaliate in kind, stocks fall. When Trump delays the tariffs and China agrees to resume negotiations, stocks rise. It has been this way since January 2018, when the trade war began.

Wall Street and The New Cold War | BullionBuzz
Some brokers arrive in Wall Street very early in the morning

The latest dust-up came when Trump threatened tariffs against Mexico. Markets sold off, bringing a terrible May to an end. Largely due to the trade war, the stock market had its worst May in seven years.

China will lose the trade war. Foreign trade is a much larger percentage of Chinese GDP than it is for the US, so a trade war will have more impact on China than the US.

But the trade war isn’t the main event. It is part of a much larger struggle between China and the US for hegemony in Asia and the Western Pacific.

They are locked in a new cold war being fought on many fronts. These include: Trade; technology; rights of passage in the Taiwan Strait and the South China Sea; and alliances in South Asia, where China’s Belt and Road Initiative is promising billions of dollars for infrastructure development.

The US is responding with arms deals and bilateral trade deals to counter Chinese influence. Even if a modest trade deal is worked out with China this summer, it will not end the larger struggle now underway.

If the Chinese view the trade war as just one step in a protracted cold war (probable), then we’re in for a long period of contracting growth that will affect the entire world.

That seems the most likely outcome for now. Get set for slower growth and perhaps stagflation. It could be like the late 1970s all over again.

This new cold war could last for decades, and it will affect the entire global economy. Let’s just hope it doesn’t turn into a shooting war.

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