If President Trump thought that enacting tariffs on all imports of Chinese goods would bring China back to the negotiating table, he seriously and severely miscalculated. Not only did China retaliate by increasing tariffs on $60 billion worth of imports from the United States, but it also is digging in its heels and refusing to buckle. To hear Chinese state news tell it, the trade war has escalated from a nuisance that would raise prices on consumers to an all-out struggle between two rival civilizations.
There are many in the US who, even though they understand the destructive nature of tariffs, nonetheless see them as a necessary tool to force the Chinese to understand that its history of intellectual property theft and reneging on trade agreements cannot be left unpunished. To their way of thinking, a little pain now in the form of higher prices will pay off in the future once China realizes that the US means business.
Unfortunately, the Chinese government seems to have a similar way of thinking. It understands that the tariffs will cause short-term pain to Chinese exporters, but that in the long term the United States cannot crush China, as Chinese businesses will still be able to find customers for their goods. The worst that may happen is that the distribution of Chinese exports may change.
Since so many Chinese firms are state-owned, -controlled, or -connected, and since China is still sitting on trillions of dollars worth of foreign exchange, the government has ample means to wait out the trade war until the US capitulates. Due both to their outlook and their form of government, Chinese officials are looking at a longer time horizon than the US, with President Trump possibly out of office in 2021 or at the latest by 2025. The Chinese are perfectly content to wait him out.
Markets are already looking at the trade war nervously, with global trade down almost 2% already. Both shipping and air freight volumes are plummeting as the trade war threatens to morph into a global economic slowdown. Caught in the middle of this are innocent investors who stand to lose much of the hard-earned retirement savings they have built up over the years.
Fortunately there’s a way to protect their savings, and that’s through investing in gold. Gold has served as a safe haven and a hedge against inflation and financial turmoil for centuries. And with every indication that a long and festering trade war is here to stay, gold will play an important role in protecting investor savings in the future.