Minyan Mailbag: Dominoes
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
I have been trying to trace the potential path of the domino effect that will occur if the United States gets into a trade war with China. The obvious and immediate is a negative effect on retailers and consumers, but then what? Dollar/Yuan? Electronics? Loss of an ally in talks with North Korea?
I would appreciate hearing from the different professors about this.
The probabilities of a trade war with China or Europe has not really increased as of late as the U.S. economy has not materially weakened against other economies. Although the chances of such are higher than they have been in the last several years, those chances would increase dramatically if the U.S. economy weakens relative to the rest of the world.
The economic statistics put out by the U.S. government show the U.S. economy to be relatively strong to a Europe that is basically in recession and Japan, which is flirting with it. Although I don't agree with the statisitics (I think the U.S. economy is weaker than those statisitcs show), perception is likely to be the driving force for legislators who would be responsible for instituting tariffs and other measures that would stir a response from our trading partners.
If a trade war broke out (it would more likely just look like a series of events) it could quickly lead to China or Japan buying less of our debt. This is the real risk. In this case I believe everything is at risk, including financials.
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