Snatching defeat from the jaws of victory?

Tony Sutton

Sintra Capital

A two-pronged tweet from President Trump over the weekend threatening to increase tariffs on Chinese imports has shattered the relative calm currently being enjoyed by markets. Given Trump’s obsession with “The Dow” and clear focus on being re-elected in November 2020, this was a very perplexing move.

After all, it is widely accepted that the brunt of any tariffs will most likely hit the US consumer hardest in the short term. It really is not that easy for retailers to shift production and sourcing away from China to other countries almost overnight. Consequently, retailers will have to raise prices to offset the additional costs which therefore effectively acts as an additional tax on businesses and consumers. Simplistically speaking, in the longer-term Chinese manufacturers will need to lower prices to remain competitive but we are nowhere near that point and the election is almost exactly 18 months away.

So why make the threat?

China’s Premier Xi has the job for life. Trump does not. China’s Premier Xi can play the very long game. Trump cannot. Trump needs an imminent resolution so he can take something tangible to the voters that he can lay claim to as proof of his accomplishments. China on the other hand, are in no hurry and more than happy to keep kicking the can down the road while they continue with the alleged theft of the world’s intellectual property and supply the world’s widgets unencumbered.

Of course there is the small wrinkle of China being the single largest foreign holder of US government debt but that is China’s problem…

In summary, we believe this is a shrewd tactic by Trump to force China’s hand at a time when the US economy is firing on all cylinders and he finds himself in a position of strength. So, it is our view that his real intention is to accelerate the pace of trade negotiations without having or genuinely wanting to impose additional tariffs. Consequently, we view any market weakness caused by the perceived escalation of the trade war as a potential buying opportunity.

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Tony Sutton
Portfolio Manager
Sintra Capital

Tony has extensive experience in international equities having worked in both London and Australia. Tony was formerly senior portfolio manager and head of international equities at K2 Asset Management (2016-2022). Prior broader market roles...

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