The economy and corporate profits are strong and Wall Street won’t care about trade wars until it threatens either of those things. Richard Bernstein, former chief investment strategist at Merrill Lynch and now head of Richard Bernstein Advisors noted “I wouldn’t say that Wall Street doesn’t care, I think that’s a bit strong. I would say that for where they are right now, the trade wars are taking a back seat to the fundamentals of the US economy. The US is really hitting on all eight cylinders right now and I think that’s the more important story for the stock market.

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But he’s not convinced markets will shrug off trade wars for long, especially if tariffs between China and the U.S. run into the hundreds of billions (more on which below). “Now of course if we start exacerbating the situation on trade it could move to the front seat pretty quickly. If there’s a rational approach, I think the markets can digest that. If it’s real scattershot and emotional I think the stock market has a lot of trouble with that.

It’s The Inflation

One of the key points people are missing, according to Bernstein, is the impact the trade war could have on already rising inflation: “This is one of many policies right now that are very pro-inflation. I don’t think there has been any time in history where restricting the flow of goods and services has not been inflationary. The Trump administration on Tuesday published a list of $200 billion worth of Chinese goods that it proposes to hit with an additional 10 percent tariff, escalating a mounting trade war between the two countries. ‘Rather than address our legitimate concerns, China has begun to retaliate against U.S. products,’ U.S. Trade Representative Robert Lighthizer said in a statement. ‘There is no justification for such action.

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USTR will hold a hearing on the proposed tariffs Aug. 20-23 as part of the public comment that ends Aug. 30. A final decision will come at some point after that, administration officials said. The administration once again tried to target exports from Chinese high-tech industries that benefit from government subsidies under Beijing’s ‘Made in China 2025’ plan, the officials said. The new list also includes some items that private sector groups asked to be included during hearings on the initial $50 billion list, they said.

The last thing America’s manufacturing workers need is an escalating trade war. America has China’s attention, so instead of more tariffs, the U.S. and China should immediately begin working toward a fair, bilateral, enforceable, rules-based trade agreement to end China’s market-distorting activities. We can’t afford to wait any longer. China cheats, and manufacturers want to see China held accountable. But more tariffs like these will punish America’s manufacturing workers—and could undermine our hard-won gains thanks to tax and regulatory reform, which have increased our global competitiveness.


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