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Trading Insights

Schwab's trading specialists answer your trading questions and provide the latest commentary and insights.

Schwab’s trading specialists

answer your trading questions and provide the latest commentary and insights.

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Randy Frederick
Managing Director of Trading and Derivatives at Schwab
Market Perspectives

Stock Market Report

September 14, 2018


LIZ ANN SONDERS: I don’t have to tell anybody that there are a lot of hot topics on which we can opine these days, but I want to focus in on what is probably top of mind for many people, which is the so-called trade war. Now, I only put the qualifier of ‘so-called’ because, arguably, we can’t quite define it as a full-on war. I think we are heading down a slippery slope, at least as it relates to China, and we’ve talked about trade and the possibility of a trade war being one of the biggest risks for the market and the economy, but I want to go inside what’s been happening with trade and tariffs and highlight two things that I think are not getting the attention that they deserve.

One, I think, is a bit of misstep on the part of the financial media. I have seen on countless occasions headlines that come across the screen or popup on my Twitter feed or I see in the newspaper that talk about the dollar amount of tariffs. I’ll use the most recent proposal, one that we are facing a month from now, which is tariffs on $200 billion dollars’ worth of Chinese goods. Now, that’s a proposed 25% tariff on $200 billion dollars’ worth of Chinese goods. The problem is many in the financial media will write the headline as ‘$200 billion in tariffs are set to take place,’ you know, whenever that is. Obviously, 25% of $200 billion is $50 billion. Now, that’s not a trifling sum, but it’s just inaccurate the way the headlines are written, so I just wanted to make that clear.

Then there’s another bigger picture issue that I think of, to some degree, as a bit of vicious circle. So we are a consumption-based economy. Most people know that. Sixty-nine percent of the US economy is driven by consumer spending. We just got a huge shot in the arm to consumer spending by virtue of fiscal stimulus in the form of tax reform and tax cuts that kicked in at the very beginning of this year. That had the effect of boosting the economy, and when you boost the US economy, and, in particular, if it’s through tax cuts that benefit consumers, you boost consumer spending, consumer confidence. We’re seeing it in the numbers. So when you boost the economy and you boost consumer spending and you’re in that tight a labor market, to fill that demand you’ve got to go elsewhere. And what tends to happen when you boost consumer spending is it widens the trade deficit. That’s because we buy more imported goods than we export.

The trade deficit is being used as a yardstick, as a rationale for moving into this trade war or trade skirmish, as we’ve been calling it. Yet at the same time, tax cuts have helped to boost the economy, boost consumer spending, which, in turn, will widen out the trade deficit, because we simply buy more imported goods. Yet a widening trade deficit may be used as a rationale for more tariffs.

So I’m just not quite sure how we get out of this circle, but it’s an aspect to this so-called trade war that I think very few people are either talking about or focused on, which is why I wanted to devote this video to that, so thanks.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.

Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.


©2018 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC (0918-8B3F).
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This material was prepared by an independent third party that is not affiliated with Schwab. Schwab does not edit or endorse any of this material and is not responsible for its content.

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