China on our minds

Investors should always be in the practice of looking for sources of economic and investment uncertainty. For one thing, these kinds of uncertainties can dictate conventional wisdom and guide global economic trends. In addition, it’s always wise to see where the future terrain might be hazardous, and make an assessment of options as a result.

So, when looking for perhaps the greatest source of potential uncertainty in the markets today, one need not look further than China. In case you haven’t noticed, the country is engaged in a budding trade war with the United States, with tariffs already on the table, and even more tariffs proposed if an agreement isn’t reached in the foreseeable future.

Conventional wisdom

Conventional wisdom China
Breaking with conventional wisdom can add colour and insight to economic and investment analysis.

Now, in these blog and commentary pages, it’s often emphasized that we should be careful when looking at conventional wisdom, or at least ongoing media narratives. If you were guided by them alone, you might be tempted to think the worst is yet to come. But, as is often the case with conventional wisdom, taking a second, or even third, fourth or fifth look, might be fruitful.

For example, let’s take a look at President Donald’s Trump most recent foray into trade disputes and tariffs: Nafta, also known as the North American Free Trade Agreement. These renegotiations were accompanied by stiff tariffs on aluminum and steel, which were seen as making trade negotiations that much more difficult. Yet, in the end, a new trade agreement was reached, the USMCA (United States Mexico Canada Agreement), and the end result was a continuation of good trade relations, with Mexico and Canada making relatively small concessions to address ongoing American grievances.

Steady as she goes

There’s no reason to believe something similar isn’t happening with China. In fact, some believe the North American trade dispute serves as a precursor to what Trump has in mind for China. Even Trump critics concede that some of his stated grievances against China have some merit, such as the dumping of steel, as well as currency manipulation, and that some correction in this regard should not only happen, but will force China to modernize some of its economic and trade practices.

In fact, just yesterday, President Donald Trump said he’s hopeful that an agreement with China will be reached. Does this sound like the sky is falling in terms of the impact U.S.-China relations will have on the global investment landscape? Maybe not.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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