Why China and the United States Are Wrong to Continue the Trade War
President Trump and President Xi are playing the biggest game of chicken since the Cuban Missile Crisis of 1962.
There are two catastrophic affects that a trade war between China and the United States can cause. One, is that wars often start out as economic wars. The second is a global depression. Kenneth Orr, a professional in the financial industry, notes this is a depression, and not a recession.
“I don’t want to dwell on the history of war. I do want to point out that the market did not recover from its peak in 1929, at 381.17, until 1954. Yes, 25 years! Let that sink in,” says Kenneth Orr. There are many events that led up to the stock market crash of 1929 and the depression. But one little known legislation, The Tariff Act of 1930, also known as the Smoot- Hawley Tariff, should serve as a reminder of how important it is for both China and the United States to resolve this trade war. This act implemented protectionist trade policies, similarly to the trade policies both countries are implementing today. While the Tariff Act was signed into law in June of 1930, it passed the House in May of 1929, and the saw turbulence with each advance the Act made through Congress.
Certainly there were other factors that contributed to the market crash of 1929, says Kenneth Orr. The factors included ones that may sound familiar to today’s markets, like tightening monetary policies by the Fed, and a stock market that attracted many speculators from the public who never knew from a down market. The difference, so far, today, is that in 1929, it was indeed an overbought market, that was overvalued, while economic conditions were weakening. However, my caution is not so much a market call, but a deep concern about the trade war. The Tariff Act caused a decline in world trade by 66%. We did not recover out the recession until the United States mobilized for World War II.
Kenneth Orr asks, Do we really want history to repeat itself?