Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

Last Thursday, President Trump announced that the U.S. is adding 10% tariffs on the remaining $300 billion worth of Chinese goods starting September 1, 2019.

Once implemented, essentially all goods coming from China will be taxed (see table below).

Source: Trust Point

Unhappy with the pace of negotiations and the lack of commitments from China to purchase American agricultural products, this unexpected announcement came only weeks after President Trump and Xi had reportedly agreed to hold off on new tariffs and agreed to restart trade talks.

These last actions from President Trump are a clear sign that the negotiations are not progressing as expected and the differences between the two countries may not be reconciled quickly.

As the chart below illustrates, tariffs have already caused supply chains disruption. They have led to a pullback in global trade, new orders, capital expenditures and hiring intentions, especially in the manufacturing sector.

As the vast majority of goods subject to the newly announced tariffs are consumer goods (apparel, footwear, toys, cellphones, laptops, etc), the service and consumer sectors may now start feeling the pinch from the trade war as well. From price increases at the checkouts to a less robust job market as a result of more cautious CEOs, the risks of an escalating trade war feeding through the entire economy have increased. While monetary reflation (or the reduction of short-term interest rates by central banks) may provide some relief over time, it typically only acts with a lag.

As a result, we are reducing exposure to equities in clients’ portfolios by reducing the allocation to internationally stocks most at risk from a continued escalation of a trade war. Proceeds are being reallocated to high quality US bonds.