Trade Wars, Elections, and Stock Markets.

How Much Are Trade Wars Hurting So Far?

The topic of Trade Wars is much less complicated than it may at first appear.  A thorough examination of the background on Global Trade and how it affects the US Economy can be found here: “Can Anyone Win A Trade War?”  (

Trade Wars became real about 1 year ago, when the US first proposed tariffs on Chinese solar panels and washing machines.  These tariffs became effective on January 22, 2018 but only applied to about $10.4 Billion worth of imports.  Since then, the US has announced, or imposed tariffs on, steel, aluminum, and consumer goods.  Currently proposed is a 5-10% blanket tariff on all $502 Billion in Chinese imports (

China has retaliated by imposing $60 Billion in tariffs on items such as autos.  All in all, the Chinese moves impact about half of US Imports.

Trade agreements with the European Union, Mexico and Canada have also been targeted for renegotiation.   Tariffs have been threatened but not yet enacted.

Many of the large, recent swings in the stock markets have been attributed to “Trade” issues or the “perception” that they would be either helpful or harmful to the economy.

On November 2nd, the Census Bureau released their most recent monthly report on Global Trade Activity, for the month of September (  The figures reveal very little apparent damage thus far.

For September, the United States exported $212 Billion and imported $266 Billion, producing a Trade “Deficit” of $54 Billion.  Exports were 7.1% higher than last year, imports were 9.9% higher, and the Deficit was nearly 22% higher.  The numbers just posted for September show solid annual growth in BOTH IMPORTS and EXPORTS.  Where is the damage?

Of course, one can make the argument the impact is largely still yet to be felt.   There is a high degree of uncertainty as to what will ultimately be enacted.  So far, much more has been threatened than imposed.

Corporate America Yells “Ouch”.

If one listened to corporate earnings reports, damage from trade policy was EVERYWHERE!

Tariffs were frequently blamed for any and all earnings disappointments.  Global Multinationals such as Caterpillar Tractor (CAT) specifically cited the impact of higher input costs from newly imposed tariffs as being a significant detriment to earnings.  CAT, in particular, paid more for imported steel and other raw inputs.  Costco cited the EXPECTATION of higher tariffs and strategically “front ran” price increases to lessen the future impact.

All in all, CNBC reported that nearly 40% of reporting companies had a “negative” impact from tariffs.  Hardly any cited benefits from them.  In general, tariffs and trade were frequently cited as factors producing a reduction in expected earnings and revenues.  (


The Trade Wars Math

On an annualized basis, the United States Imports run at $3.2 Trillion and Exports at $2.5 Trillion.  By comparison, US Gross Domestic Product is currently $20.6 Trillion (

If ALL imports were levied with a 10% tariff, consumers and purchasers of foreign goods would be required to pay an additional $320 Billion ($3.2 Trillion X 10% Tariff).  Sounds like a lot, but even if all the extra revenue generated by a 10% blanket tariff went to paying down the current Budget Deficit of $830 Billion annually, it would cover less than half.

What one can take away from this is the Trade Wars are not likely to be responsible for the undoing of the United States. In order to have more than a negligible effect, they must result in REDUCTIONS in VOLUME of 2-way trade.

The United States currently engages in $5.7 Trillion annually in all its 2-way global trade ($3.2 Trillion in Imports + $2.5 Trillion in Exports).  If tariffs were to cause a drop in transactions volume of 10%, the impact would be $570 Billion ($5.7 Trillion x 10%).  Or, compared to the overall economy, the damage would be 2.8% of GDP ($570 Billion / $20.6 Trillion).

A targeted tariff here or there, however, should not be a substantial driver of economic health.  Currently, while most of the Trade War talk involves threats or intentions to raise tariffs, the sheer size of the actual, enacted Trade War is, thus far, substantially overstated.

The Four-Year Presidential Cycle.


In the land of market analysis, there rarely comes a “rule of thumb” methodology with a greater following than the “Four-Year Presidential Cycle”.  The theory holds that stock market returns are cyclical in nature following the 4 or 8-year Presidential Cycle.

According to this theory, the incoming President will do all the “tough” things early in their administration, before re-election is an issue.  Therefore, returns in the first two years of a Presidency will be lessened.  Once the midterm election is over, stock market returns typically accelerate after the election.

While the data appears to lend some support to this theory, keep in mind that in 50 years there have only been TWELVE elections.  Thus, regardless of the time frame, the number of data points is small.  In addition, how relevant are observations from 30, 40, or 50 years ago?

It’s Not the News, But “How” the Market Reacts.

Two years ago, a longshot victory in the US Presidential election at first produced a near overnight crash.  At its low point, The Dow Jones Industrial Average lost almost 800 points in overnight trading.  But, by the time the dust had settled, the markets were blasting off on one of the most frenzied advances in history.

Wall Street’s REACTION to the results of the Midterm Election will be most informative as the market makes its assessment.

Here’s a couple of rules of thumb:

  1.  Market’s often “Rally Into The News and Selloff ON THE NEWS”.  If so, we ought to see a resumption of the BEAR fairly soon.
  2. The News Goes With The Trend.  In other words, the market’s “interpretation” of the election results will reveal its own primary trend.  If so, we ought to see a resumption of the BEAR fairly soon.

Either way, there is no credible evidence the stock markets are generally better off under Democrats or Republicans, Divided Government, or One-Party Government.  Mr. Market is non partisan and doesn’t care whether you come from a BLUE State or a RED State.  He just cares that you have some GREEN because he’ll cause you to live in a POOR State.  Be Informed, Not Misled!




Comments (2)

  1. Eduardo Valle
    Nov 10, 2018 at 12:38 pm

    Marko, you are a gentleman and a scholar ‍
    What timeframe do you have in mind for the resumption of the bear, approximately? I personally believe there might be a rebound before the bear comes around.
    Also, congratulations on your blog , this is awesome and really eye opening, I wish I would’ve known about this website before.
    Do you have a crypto address for donations? If so, you should post it up, so we can contribute for all the good work and great articles that you post.

    • Nov 10, 2018 at 5:21 pm

      Wow Eduardo

      I’m so honored and flattered! Any support would help. I’ll be sure to put something up next week. I also have a new piece
      on Cryptos coming soon.

      As far as the BEAR goes, I think it has been postponed a bit, but hardly averted. Right now, the BEAR is effective at 23,500. The Bull Market resumes at 27,000. Either way, best to let others get beaten up trading and stay liquid. Opportunities will come up.

      Thanks again, Eduardo. I am gratified that the effort is appreciated. I try to make this the best analytical forum possible…..


Leave a Comment

Your email address will not be published.