How A US-China Trade War Could Benefit You

Do you remember the unseasonably cool weather we had in Singapore last month?

I could not get enough of it.

I thought it was really refreshing to have temperatures dip to around 20°C in the middle of the day.

But not everyone will agree.

Some of us were rushing out to buy sweaters and cardigans. Some were even rifling through their drawers in search of old fleeces that they never thought they would need in a month of Sundays.

Thing is, the cool outdoor temperatures in early January were really no lower than the temperatures in some of our Singapore shopping malls….

…. Scotts Square and Paragon are always good places to go in Orchard, if we need to cool down. Another could be standing next to one of the freezer cabinets at Cold Storage. I do that quite often.

Jumping to conclusion

When something usual, such as a sudden drop in temperature, happens, it is easy to jump conclusion.

I heard some people point the finger of blame at Donald Trump. “It’s all his fault for abandoning the climate change accord”, they said.

Admittedly, Trump has done some unbelievably tactless things. But I doubt if even he could bring about a sudden change in Singapore’s climate.

Let’s not forget that Singapore sits just 90 miles north of the equator. Temperatures here don’t vary that much from month to month, and from day to day.

So, despite the cool snap, I would bet my last dollar on average Singapore temperatures being around 28°C – cooler at night and hotter during the day.

All bull

Jumping to conclusions is something that many might do when investing, too.

We are now in the ninth year of the long American bull market. That old bull must be getting tired.

But let’s not forget that it hasn’t been a plain-sailing bull market. There have been hiccups along the way – 18 setbacks, to be precise. 19 if you count the latest one.

Only a handful have been severe enough, though, to qualify as a correction.

But just as the recent drop in Singapore’s temperature came as a bolt out of the blue, the stock market could give a few surprises us too.

There are many things out there that could disrupt the market. A trade war between China and the US is one that stands out right now.

There is good reason to assume that one might break out.

The latest economic figures from China pointed to a huge imbalance in trade with America. China has exported US$278.5 billion more to the US than it imported.

The yawning gap is tantamount to waving a red rag in front of Donald Trump. He is unlikely to take that lying down. He has already retaliated with sanctions.

Stay calm

It has already started with penal taxes on washing machines and solar panels. China is one of the world’s biggest producers of solar panels.

Further sanctions, if they should be imposed by the US on Chinese goods, could harm global trade. It could rock global markets, especially if it turns into a tit-for-tat between the world’s two largest economies.

Imagine what could happen if America continues down this road with massive tariffs. China could hit back with equally disproportionate taxes on US soya beans.

It could get ugly. It could even affect stock markets.

But here’s the thing….

Rubber chicken

Trade disputes are nothing new. In 2009, America levied tariffs of up to 35% on Chinese tyres. China countered by imposing taxes on American chicken.

But life still went on.

American cars are still on the road. Chinese diners still eat chicken. All the while, the stock market has gone from strength to strength.

Point is, we should never allow ourselves to be affected by recent events.

Just as a temperature drop in Singapore does not herald arctic conditions, a correction in the stock markets does not mean that we should run for cover.

Over the long term, Singapore shares have delivered a total return of around 8% a year. That’s a pretty decent return.

So, we should always welcome a correction.

So, don’t be caught out by recent-event syndrome. It could be just the opportunity to buy more of the shares that we like at better prices.

A version of this article first appeared in Take Stock Singapore.

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