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Investors have undoubtedly heard about trade tensions between the United States and China.
Both countries are struggling with a power struggle to impose new tariffs on goods imported into their country.
But it is difficult to predict exactly what a trade war between the United States and China means for the stock market or the economy of either country.
To understand its importance, one needs to take a closer look at what the US and China are arguing about and whether this should or should not change your current investment strategy.
So why are the United States and China imposing new tariffs?
In 2017, the United States began to review China's trade policy and decided that the deficit between the number of goods imported from China by the United States in relation to the amount exported to China was too large.
The US government then imposed billions of dollars in tariffs on some Chinese products entering the United States, and in return, China issued its own tariff cycle on some US imports.
The two countries have had talks to try to resolve trade tensions, but they have reached no long-term solution.
Why is this trade war important for investors?
When new tariffs are applied to products, it is not the countries that actually pay for them. The companies that sell the products pay the extra costs from the outset, and then they generally pbad on that expense to their customers.
For example, tariffs on some electronic products manufactured in China and exported to the United States could increase, which could lead to higher prices for some devices.
If this happens, sales of US technology companies could fall. In addition, the higher cost of the devices would likely encourage Americans to limit their spending.
And rising tariffs on US products exported to China mean that companies in that country could also raise their prices and that Chinese consumers could suffer in the same way as US consumers.
China and the United States have two of the world's largest economies and the International Monetary Fund has warned that a total trade war between them could hurt the global economy.
For this reason, the trade war tensions between the United States and China have caused some volatility in the stock market. But that does not mean that investors should panic and sell their shares.
Trade negotiations are not over yet. Which means that selling shares before trade deals are made is simply based on fear.
Do not forget that in the long run, the stock market has generated strong returns even in the face of wars, depressions, recessions and other negative events.
In fact, the current trade war creates new investment opportunities.
As investors flee the market, it lowers the price of stocks and allows savvy investors to buy companies at great prices.
There is still a lot of uncertainty about what will happen with the trade talks between the US and China, but investors should not forget that, for the most part, it is best to stay the course on their investments – and to be on the lookout for good deals
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