The Motley Fool

Quick Thought Of The Week: Farcical

The trade war between the US and China is fast becoming a farce. Not that it wasn’t a bad joke to begin with.

But now it is turning into the metaphorical circus clown’s car with two equally-comical drivers at the wheel….

…. Smoke is spewing from the engine; the wheels are falling off and the doors are coming apart at the hinges. But the two drivers, who are still so fixated with political ideology and populism, are oblivious to what is happening to their own people.

America, in response to China’s retaliatory tariff on $50 billion of US imports, has threatened to slap a 10% tax on an additional $200 billion worth of goods. That could come as early as next month.

Amongst the products that will incur the new tariff are human hair, baseball gloves and…. wait for it…. live trout, which, according to CNN, hasn’t been imported into the US for decades….

…. America is running out of things to tax. But it has pledged to carry on, even though trade wars are not easy to win.

China is digging in its heels. But is facing problems too. It has reportedly told its soybean importers, processors and animal feeders to be prepared to consume between 15% to 20% less next year. No one has bothered to tells the pigs that they will have to make do with up to a-fifth less protein supplement.

There is something else. America factory gate prices are on the rise. In June, US producer prices rose at their fastest rate for 6-1/2 years. In the 12 months to June, they advanced 3.4%, which is the largest increase since November 2011.

How much of the increase is due to disruptions in the supply chain caused by the trade war is unclear. But those disruptions cannot be ignored. Nor can a tightening of the US labour market.

A lot, now, will depend on whether producers will pass on the increased costs to consumers. If they do, which is likely, then that could feed into consumer prices inflation. When that happens, the US Fed may have little choice but respond with more interest rate hikes.

The media, meanwhile, is, understandably, focussed on the trade war. It is easier to write about, especially when markets react violently to the flips and flops from the White House.

But the upshot of the farcical Sino-US trade dispute could be higher consumer prices. That is a considerably less sexy topic for journos to write about. But it is no less important to us.

Unlike those pigs in China that will have to make do with 20% less protein, I want 20% more when I retire. And volatile stock markets are my way of getting that one-fifth more.

A version of this article is published on Stock Advisor Singapore and Stock Advisor Gold.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.