As I’ve mentioned, I believe the current trade war is more of a trade spat: a sort of economic posturing that will precede negotiations, the economic equivalent of the “my brother’s bigger than your brother” argument. But it does have the potential to turn into a trade war. If it did, what might that mean to us?
I think a real trade war could be big trouble. To begin with, tariffs increase the cost of goods. When one country says, “We’re going to charge you 25% on top of the price of that widget you’re selling,” the country being charged usually retaliates with, “Oh yeah? We’ll charge you 30%.” That escalating argument creates higher costs for consumers, which is basically inflation. If inflation takes hold, it can create a recession. And if we have a recession, it could go global.
The global levels of debt right now are staggering. All this super cheap low-interest rate money has encouraged people, organizations, and countries to borrow, borrow, borrow. I believe all this borrowing has put countries in dangerous positions: Italy, Argentina, Venezuela, China—I think they’re all operating in bubbles. They have enormous amounts of debt. They pay back their debts with the tax revenues that their economies generate. But if they are faced with a deep recession, they may have difficulty paying back their debts.
It’s not just them, either. Since 2008, U.S. corporations have also rung up historic amounts of debt. I think we’re sitting on a giant tinderbox of debt, and if a recession hits and countries and businesses have to pay back their debts, I think we could see a bear market of historic proportions.
I don’t think we’re in a trade war yet, but I do think it’s the right time to plan ahead. Don’t wait until we’re in a crisis to make a game plan. Think about what you need to do to try to protect your investments, and get your financial ducks in a row today. We can help.