Economy,  Stock Market

What’s a Trade War?

Reading Time: 2 Minutes

Golly gosh, it’s that time of the week again right?

Another episode offfff TheFrugalSamurai.

A bit late on this post, apologies guys – been driving around half of Sydney yesterday chasing my tail.

THEN I realized I was doing so somewhat illegally… as I completely forgot about renewing the bloody car insurance.

LUCKILY nothing happened (breathes huge sigh of relief).

Excuse my absent-mindedness, got a lot on my plate.

Like?

To tell the truth, a big sticking point is figuring out where to make my dollars work the hardest right now.

Image result for slave rowing gif
“Work, damn YOU, work!”

Traditionally I’m a property and shares kinda guy as you know, BUT currently real estate in Australia ain’t doing too well, and values are still a bit high for my liking (a 10-15% pullback from a million dollars is still a lot of dough).

Inter-state ain’t doing too much better, and with the high likelihood of a change in government…

What about shares?

Again, my belief is that it’s looking a bit “toppy” at the moment, with values grinding their way upwards… I’ve just taken a bit of cash off the table and waiting to see what happens.

Waiting for what?

This “Trade War” to settle down for a start.

What’s a trade war?

It’s when two countries decide they have nothing better to do than lob taxes against each other’s well, trade.

Usually one country (USA) imposes additional taxes called tariffs against goods – let’s say Apples, imported from another country (China).

This has the effect of raising prices, hence discouraging consumers to buy less of those delicious, juicy apples and more of a cheaper (untaxed) competing good, let’s say succulent, wholesome oranges.

Image result for apples and oranges and pears
Compare the pear.

Consumers (you and me) are usually worse off because we pay higher prices for a smaller amount of apples and exporters (China) are worse off for having sold a smaller quantity of apples at a lower price.

So what?

As expected, China has imposed retaliatory tariffs against some US goods, and have left the door open for more action.

Hence watching a full-blown trade war evolve before our eyes is something not many of us have experienced.

Seemingly volatility in the markets across currencies, interest rates and equities has returned and movements are guided largely on gut instinct and very little on fact.

Which is incredibly scary when these days we may as well be relying just on President Trump’s twitter account for market movements.

Why’d he start it?

Jeepers Creepers you are pushy aren’t ya.

Look, I’ve no idea why he started it BUT I do have this very TELLING interview clip on Youtube he gave to Oprah way back in 1988.

Some of what he says are just… go on, watch it yourself.

(Note, I don’t own the video, so please Google/Youtube/Internet Gods, don’t take it down here, but in case Big Brothe… I mean it does get taken down, it’s called “Donald Trump Teases a President Bid During a 1988 Oprah Show”).

Oh.

Yes indeedy.

Logically and with good reason, you’d think that this “tit for tat” stance of both countries benefits neither, which is why many people (myself included), have hit the “sell” button to wait it out for when a clearer picture is formed.

Smart.

Well, not necessarily – there are some winners here.

Like who?

Well, domestic (China and US based) orange sellers for a start.

As the cost of importing those luscious, tender apples increase – more and more consumers head over to the orange market.

Which leaves orange sellers to sell more (more profit) or increase prices (more profit).

That’s President Trump’s reason for starting this “war” methinks, for the betterment of domestic companies.

So… buy the shares of the orange companies then?

Yeah… yeah… I… I think I will.

Image result for orange company
“BUY!, BUY!, BUY!”

What else?

Now that you mention it, as Chinese exports to the US come under more and more pressure, other exporter countries unaffected by the tariffs have thrived.

Electronic exports from South Korea and Taiwan to the US have increased rapidly as Chinese exports of these products fell.

And from the Chinese side, they’ve exercised their political clout to do business away from the US.

President Xi recently signed a whopping $35 billion deal with European Airbus for 300 new planes – leaving the US based Boeing very much in the air.

It’s looking up for those countries China seeks to ground the US.

Just plane awesome… OKOK, I’ll stop now.

Hm, well then buy into those countries that benefit from this trade war!

Wow… you’re good.

So Simpaul.

Now you’re just showing off.

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