Tariffs are a tax, and higher taxes restrict growth, and stock markets shudder at thoughts of restricted growth. I’m guessing your answer to the question above is “Yes”, but since it is news that is many months old now, why do investors continue to sell the headline of tariffs affecting our economy? The answer is because those ‘investors’ are actually ‘traders’, and traders prefer to react to short-term trends. Our view is reacting to headlines and short-term trends is a losers’ game, and one we’d rather not play.

Regarding trade and following last week’s meeting between Trump and Xi, the next 90 days are crucial and should signal to both sides a sense of urgency; as the additional hits to both economies would be substantial if the higher tariffs kick in. Trade, though, is not the only area of tension between the world’s two largest economies. At Schwab’s IMPACT conference in November, Stanford professor and world-renowned historian Niall Ferguson highlighted the implications of the end of “Chimerica”, which can be summarized below i :

“There are too many areas of tension right now between the United States and China for any one meeting to fix. Amid a climate of intensifying rivalry and mistrust, hardliners in the Trump administration are scaling up aggressive measures against China over issues related to cyber activities and commercial espionage, as well as foreign policy flash points such as the South China Sea. There remains significant potential for U.S. actions in the coming weeks that raise the temperature in the relationship and make it politically more difficult to pragmatists on both sides to make concessions.”

The uncertainties surrounding tariffs and U.S./China relations may not be resolved swiftly, so expect more volatility. And if you cannot stomach the market swings, perhaps it is an indication that your exposure to equities should be re-evaluated.