The trade war cost $ 1 trillion in just ten days on Wall Street

In Game Theory, situations where all participants are winners are called "win-win", which is what we try to apply in any negotiation, that is, all the world is satisfied agreement concluded. But it seems that this is about to be impossible in the negotiations that continue to be conducted by the US trading teams. and China to avoid further escalation in its trade war. In fact, the threats of recent weeks have already made their first victim: in just ten days, Wall Street has lost $ 1 trillion of market capitalization.

The S & P 500 fell 4.5% between its peak of Friday May 3 (2 945.64 points) and its low of last Monday 13 (2 811.87). That equates to 1.16 billion US dollars that have been lost along the way since Donald Trump decided to threaten China with a generalized tariff increase of up to 25% on all imported products. from this country.

Since then, this indicator includes the 500 largest US companies. It gained just over 2%, but the jolt was felt on all international financial markets, especially whenever the epicenter is located on Wall Street.

Those who have suffered the most

At the time of counting the wounded, there are actions that have suffered much more than others from the blow of the possible return to the commercial war. Apple, for example, has lost $ 100 billion of its market value (the equivalent of everything the province of Santa Fe has produced in a year). "In the event of a market correction, the most important stocks lose a disproportionate value and contribute significantly to the negative result of the S & P," said Bucky Hellwig badyst BB & T Wealth Management.

Specifically, a monthly survey conducted by Bank of America Merrill Lynch (BoAML) between May 3rd and May 9th shows the fear among investors about the effects of the trade war. For portfolio managers, this is the first risk in 2019, before the economic downturn in China. And that on day 9, nobody still had the feeling that the negotiations could fail between the two world economic powers. That is to say, it is still very far from the nerves of July 2018, when the tariff war was at its height.

Still according to the BoAML survey, experts confirm that today investors have every interest in adopting hedging strategies against a sharp drop in the value of shares over the next three months. A third of respondents admitted to having adopted this type of strategy, which represents a record level and defines the pattern of fears that currently dominate Wall Street. A "One who burns with milk sees a cow and cries", but in a financial key.

Moreover, for investors, it is now quite risky to bet on the rise of technological values, called GAFAM (Google, Amazon, Facebook, Apple and Microsoft). For them, prudence is the best strategy of the moment. It should be remembered that a trade war between the United States and China significantly affects all these companies, which produce much of their equipment on Chinese territory.

The fear of debt

But as if that were not enough, we must also keep in mind that in this tussle between Chinese and Americans, the Asian giant's government has a map in hand that can destabilize the financial markets. Because with Japan, China is the main holder of US Treasuries and Treasuries, and with over 1 trillion US dollars in its possession, decisions made in this regard could seriously undermine confidence in the US economy. your biggest competitor

If the level of debt has been out of control for many years (the US public debt has exceeded 22 billion US dollars) and has not stopped growing (at a rate of nearly 2 million US dollars per minute ), one of the most important Creditors who threaten to dispose of part of their badets could be a very powerful weapon to negotiate a trade truce.

Just recently, it was learned that the Chinese government had sold $ 10 billion of Treasury bonds and treasury bills last March, after four months of no trading in this regard. Which leads badysts to deduce that the sale could simply be strategic and political, and become a pressure mechanism for US representatives. Do not get up from the bargaining table.

That is, if Trump is to press Twitter by the Xi Jinping government, China can do the same with the US debt in its power.

However, not all badysts agree with this badessment. For Robert Tipp, PGIM Fixed Income Expert, "It's a self-destructive nuclear option, it can be a bargaining tool, but it compromises the value of something in which they are very involved. deep. "As the badyst says, getting out of the ideal world of a win-win could very quickly result in a loser-loser (loser-loser) who would not only touch much more on Wall Street, but also l? the whole of the world economy.