Henry James International Management August Market Commentary

Market Overview

 August was not a positive month for markets. The MSCI EAFE index fell by -2.58%, the MSCI World ex USA Small Cap dipped by -2.30%; the MSCI EM index shrunk by -4.85%. Dramatic though these losses may be, they are arguably slight given the scale of market-influencing political volatility August witnessed on a global scale. The main protagonists were the United States (US) and China, whose trade conflict has escalated to dangerous heights in terms of new tariffs and fiery tweets. Worse yet, the path to a resolution is not nearly as obvious as many may have deceived themselves into believing only a matter of months ago. Brexit continues to impede both the United Kingdom (UK) and European Union’s (EU) economies and there is no end to the uncertainty on the horizon, despite new British Prime Minister (PM) Boris Johnson’s insistence that Brexit will happened, come what may, at midnight on October 31, 2019. August also presented markets with a range of worrying facts: 10 year US bonds fell below their 2 year counterparts for the first time in a decade (a telltale sign of imminent recession), the US economy is slowing, China is also in the midst of an economic slowdown as well as a serious debt crisis, Germany is in a fully-fledged manufacturing recession and Britain appears headed for their first recession since the financial crisis (July’s positive UK economic growth, notwithstanding). Despite all of this cause for genuine concern, there is some reason for optimism. Firstly, low US interest rates – despite making markets defenseless in a recession scenario – should help catalyze the US economy; furthermore, they should help Emerging Market (EM) economies who are already benefiting from Chinese supply chain disruptions. Indeed, we believe that the Federal Reserve will lower rates at least one more time in 2019, with possibly more reductions in 2020. Secondly, the World Bank is anticipating global growth of just below 3% for both 2019 and 2020, which would suggest that there is still a range of underpriced opportunities available for investors. Lastly, as we saw when Sterling surged in early September when UK PM Johnson’s bold Brexit plans were frustrated by the UK’s Parliament, in a world burdened by such troubling politics, any news that is even vaguely positive will create market optimism, however ephemeral.

Despite the projected growth that cushions markets from international recession, we believe we are experiencing a global growth slowdown. The US enjoyed tremendous short-term benefit in 2018 (GDP growing 2.9%) through the Trump tax cuts, which flooded the economy with corporate and consumer capital. However, it came at a big cost of adding more than a Trillion USD to the fiscal deficit, which a cynic might think is not necessarily symptomatic of the fiscal prudence for which Republicans are famous. Beyond that, a range of non-political voices, including that of the International Monetary Fund, were transparent in their view at the tax cuts’ inception that 2018’s turbo-charged economy would not only lead to an economic slow-down and recession, it would in fact hasten it. We believe we are experiencing this today, which has become even more problematic given the way in which the Fed was effectively coerced to keep up with 2018’s economy by raising interest rates to combat inflation. Today, with American growth stalling and further impeded by the US-China trade war, the Fed is really only able to stimulate growth by lowering the interest rates it – we think – unnaturally hiked up only last year which will leave it without any tools to combat the recession which many believe is on the horizon.

China and Germany – and certainly the two nations combined – corroborate our view that we are in the midst of a global slowdown. China has arguably been the main driver of global growth since the financial crash of 2008 and any reduction in its GDP is felt throughout the world. Part of China’s economic overdrive in the past decade has been heavy borrowing and loans that stand little chance of ever being repaid. Moreover, Chinese consumer debt is also worryingly deep. China has tried to rein in corporate and consumer lending, but each instance has led to a global economic stumble, which compelled Beijing to loosen lending again. China is currently at a 30-year industrial production growth low (4.8%), which may be part and parcel of its desire to shift its economy from manufacturing to services, but this will be a painful transition not only for China, itself, but for a world economy that is dependent on Chinese growth.

Henry James International Management August Market Commentary
Despite the projected growth that cushions markets from international recession, we believe we are experiencing a global growth slowdown.

Germany, meanwhile, saw its economy shrink by -0.1% in the second quarter of 2019 and a deeper drop is predicted in the third quarter. Its fate is largely in the hands of China as Germany exports nearly $100bn of goods to the Communist state and a slowing of Chinese consumer and corporate spending will hit hard. The Chinese buying fewer German products – chiefly cars, machines tools and manufacturing equipment – will continue to damage Germany’s manufacturing which is currently at seven consecutive months of decline. It must also be said that Germany imports more than $100bn of Chinese goods, and an economically declining Germany spells bad news for China, particularly given its trade war with the United States.

Brexit is not just bad for Britain, whose best-case scenario appears to be recession – it is also dangerous for Germany. Germany exports nearly $100bn of goods to Britain and a Brexit that imposes any element of trade friction and uncertainty will make this number fall; and possible tariffs will make the cost of business significantly higher. Indeed the uncertainly and chaos caused by Brexit are likely partially to blame for Germany’s recent poor GDP and manufacturing figures. With the October 31st Brexit deadline quickly approaching, the projections of economic Armageddon as well as food and medicine shortages are becoming less abstract and more tangible (particularly since the release of information pertaining to Operation Yellowhammer). Markets reacted positively to the news that Parliament managed to thwart a ‘No-Deal’ Brexit (for now) as well as possibly extending the deadline beyond Halloween. But when markets wake-up, they will realize that an end to the deadlock remains illusive and until a market-friendly resolution is achieved the British, European and World economies will continue to suffer.

Of course, among the largest contributors to US and Chinese market woes is their trade war, the stakes of which rose considerably this past month. August kicked off with Trump announcing a 10% tariff on over $300bn of Chinese goods, citing a lack of progress in trade negotiations. A couple weeks later, the US President did a partial about-face, saying that he would delay the tariff on cell phones, video games and apparel until December 15 to mitigate the damage it would have on US consumers in the run-up to Christmas. Trump hoped this gesture would impress Chinese counterpart President Xi Jinping and make him more dovish. This was not realized as the Chinese increased their hostility by ordering all companies to stop buying US agricultural goods (worth up to $20bn) and new tariffs on $75bn of US goods, which went into effect on September 1st along with the new US tariffs. Trump’s response was ordering US companies to no longer do business in and with China (an order that does not command legal weight) and set the preexisting 25% tariffs on $250bn of Chinese goods to go to 30% on October 1, 2019 and the newly introduced 10% tariff to rise to 15% on December 15, 2019. As of September 2019 we are at the high water mark of this trade war and markets will hope that hostilities begin cooling immediately.

Investment Outlook

James O’Leary, CFA, Chief Investment Officer and Senior Portfolio Manager at Henry James International Management, believes we are starting to experience a global growth slowdown. ‘Germany is the bellwether of global manufacturing and their manufacturing sector has slipped into recession,’ he said. Due to uncertainty that has negatively affected the Chinese economy on the back of the trade war and their debt crisis, says O’Leary, China simply has neither the need nor the money for German manufacturing machines and luxury cars. According to O’Leary the German and Chinese economies are co-dependents and their respective woes and uncertainty will drag the other down. Closer to home, German trade with the UK has slowed down simply because the British economy is shrinking, which will likely continue to be the case until a market friendly Brexit is achieved, says O’Leary.

Henry James International Management August Marketing Commentary
‘The German and Chinese economies are co-dependents and their respective woes and uncertainty will drag the other down.’

Regarding Brexit, ‘Who could possibly consider investing in the UK right now? It is not even clear whether they will be able to import food in a few weeks,’ said O’Leary. He continued, ‘Uncertainty breeds consumer anxiety, and this inevitably results in consumers tightening their belts and spending less money.’ While the likelihood of a No-Deal Brexit will have gone down considerably after Parliament wrested control from PM Johnson, the longer Britain and the EU kick the can down the road, market pessimism will persists and people will choose to save and not spend their money. The result: further economic slow down in Britain, Europe and the rest of the world.

O’Leary is not averse to the concept of playing hardball with China, particularly in relation to their recent history of intellectual property theft; indeed, he is even open to some element of ‘necessary’ market pain that may result. However, in his view IP theft is not a uniquely American problem. ‘Multilateral action against China that incorporated the likes of Germany, Britain and Japan would have worked far better in terms of actually getting China onside and limiting market volatility.’ What is more, says O’Leary, while the Obama administration’s Trans-Pacific Partnership (TPP) was not an effective way to subdue China, there is no reason why the US could not have remained within the robust trading block and still go after China in a multi-lateral fashion. The US-China trade dispute has put uncertainty into both countries manufacturing, says O’Leary, because tariffs automatically reduce the number of people on either side of the divide who will be open to buying the other’s products. ‘If one is going to produce goods, better be sure there will be somebody who will buy them,’ says O’Leary. Of course, a positive side-effect of the trade war has been disrupting Chinese supply chains, which makes the world economy less reliant on Chinese manufacturing and also gives Asian EM economies like Vietnam a big boost.

According to O’Leary, one of the most worrying elements of the global slow down from a US perspective is that the Trump Tax Cuts, despite boosting the economy in 2018, added significantly to its public debt. Indeed, much of this debt is foreign, which means that it actually has to be paid back, he says. Of the US’s $6.2tn foreign debt, $1.18tn is owned by China and $1.03tn is by Japan. O’Leary also laments the way in which Trump’s Tax Cuts effectively coerced Fed Chairman Jerome Powell to combat inflation through raising interest rates through gritted teeth.

At Henry James International Management our investment strategy bears the full range of these market issues in mind while it ‘quantamentally’ locates opportunities while minimizing risk. ‘We use a very disciplined country-weighted system that is based on equally weighted equities in each country based on their 52-Week Sharp Ratio,’ says O’Leary. He continued: ‘So when a country’s relative strength decreases the weighting in our portfolios for that country also decreases.’ He points to the UK, Germany and China, whose equities have decreased proportionally in our portfolios. Conversely, our portfolios are over-weighted in India, which has seen excellent growth during the past several years, and Russia, which is exhibiting growth in several sectors. Sector-wise, our ‘quantamental’ strategy has seen our funds naturally reduce investment in iron ore and, of course, manufacturing, while we have increased investment in biotech, internet retail and pharmaceuticals.

As we head into 2019’s homestretch, we are grateful that the year has mostly defied analyst predictions from back in 2018, in so far as markets have delivered for investors thus far. And yet, far from the political volatility abating, it has only increased. We would like to see world economies turn away from the tit-for-tat that has seen countries use tariffs to exploit others’ vulnerabilities. Moreover, we would like to see a world of inclusive economic relations for everyone’s mutual benefit, as using trade as a substitute for war is reminiscent of the politics of the Smoot-Hawley Tariff Act that arguably made the Great Depression both deeper and longer. As O’Leary puts it, ‘Let’s hope wiser heads prevail!’ Thankfully for investors in the medium term there is some global growth and lower US interest rates should help impede the global slowdown.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its’ representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

February Market Commentary

Market Overview

Despite January having been a month rife with political turmoil and economic anxieties, for many investors the panic of Christmas Eve will have likely abated considerably as markets have so far rebounded nicely in 2019. The S&P 500 – which was among the standard bearers leading 2018’s 4th quarter nose dive – enjoyed its best January since 1987 thanks to positive contributions of over 8.5% growth from the energy, industrials and financials sector. Developed Market (DM) equities followed suit by gathering a head of steam in their own right, up 6.59% as measured by the MSCI EAFE. Emerging Market equities were also lifted in the momentum, up 8.78% as measured by the MSCI EM Index after having been battered in 2018.

 Despite January market performance putting a spring back in many investors’ steps, headwinds to economic and market growth abound. Among the more notable is the United States’ inauspicious start to 2019 that saw its government in the midst of a shut down that lasted 35 days – a record, but likely not the kind with which anyone would have wanted to have been associated. Having been triggered by President Donald Trump and Congressional Democrats wrestling over the former’s polemical border wall with Mexico – the shut down is estimated by the non-partisan Congressional Budget Office (CBO) to have cost about $11bn and to have wiped 0.2% off its 2019 annual growth forecast. Of course, when the shut down ended on January 25 much of the lost money was recaptured, but it is estimated that around $3bn is gone forever and that the full effects of the shutdown may be far greater than what initial figures might suggest as over 800,000 workers were affected and federal spending on goods and services were significantly delayed. While investors can take comfort in knowing that the shut down is over, there remains palpable risk of another one on the horizon if lawmakers cannot agree on a solution for enhanced security along the US-Mexican border.

Across the pond the world’s 5th biggest economy, Britain, is a matter of weeks away from crashing out of the European Union (EU) without a deal. Aside from crippling the UK economy, mainstream pundits, policy makers and business leaders have indicated that Britain will be susceptible to widespread food and medical supply shortages. While this self-inflicted wound is bad for the UK, a no-deal Brexit would radiate shock waves throughout the rest of the world and would ravage global markets. In 2010 the world was afraid of the possible contagion from Greece’s debt crisis, and yet Britain’s economy is more than 10 times larger, which raises the stakes considerably. We believe no one would be safe in a no deal Brexit and we will be hoping that Prime Minister Theresa May will be able to acquire further concessions from the European Union (EU) and secure an orderly and structured (hopefully soft) Brexit.

Henry James International's February Market Commentary
If the US and China do not agree a new trade deal by March 2 over $200bn of Chinese goods will see their existing 10% tariff more than doubled to 25%.

While Britain and the EU scurry to work out a last minute deal, the top brass of China and US have been knuckling down to avoid their own cliff-edge: if a new trade deal is not agreed by March 2 over $200bn of Chinese goods will see their existing 10% tariff more than doubled to 25%. China has promised retaliatory measures, which would likely result in a ‘gloves-off’ trade war, which would hit both the American and Chinese economies and reverberate catastrophically throughout the rest of the world. At the heart of the deal is correcting an imbalance in trade between the nations, as well as the more serious White House accusations that US tech companies doing business in China are coerced to hand over their intellectual property, which the Chinese vehemently deny. Talks began two days after the US charged Telecoms company Huawei and its chief financial officer, Meng Wanzhou, with conspiring to violate US Iranian sanctions; US officials insisted Meng’s arrest in Canada had nothing to do with the trade talks. Despite ample scope for disaster, the Chinese hailed the talks as a great success and promised to help correct the trade imbalance through buying more American soybeans; and both parties nebulously agreed progress had been achieved on the intellectual property front. While there does appear to be a positive glow about the meeting, the clock is ticking and the stakes really could not be higher.

US Federal Reserve Chairman Jerome Powell is apparently feeling the heat of a less rosy outlook for the US economy, the record-breaking shutdown, trade impasses and global headwinds to growth as he has done a near complete about-face with his monetary policy in a matter of weeks. On January 30, 2019 Powell signaled a possible end to incremental interest rate increases, saying that despite neither inflation nor financial stability being particular risks, ‘cross-currents’ of slowing global growth – including China having its weakest economic output in 2018 for nearly 3 decades – and a less certain US outlook required changes to the Fed’s monetary policy. While we welcome a pausing of rate hikes, it must be said that with interest rates between 2.25% and 2.5% there will be little wiggle room to combat any future downturn with rates cutes alone.

Brazil is the clear bright spot for international investors as its Bovespa index managed to build on its stellar 15% 2018 growth by hitting its all-time high after surging up more than 8.5% in January. The benchmark stock index is clearly enthusiastic about the presidency of the far right Jair Bolsonaro who began his premiership on January 1, 2019 and comes with the promise of a range of business-friendly reforms, including changes to the Brazil’s pension system. And yet, in the midst of the Brazilian buzz the Vale Dam tragedy literally burst onto the scene, incurring for the mining giant a combined $1.7bn of blocked funds and government fines. Over 300 people are believe to have died in this ecological disaster, and Vale confirmed that it will decommission other dams similar to the one that collapsed, which will reduce its production of iron ore by as much as 10% in the next 3 years. Besides providing an element of headwinds to Brazil’s thriving equity prices, China and Vale’s mining rivals BHP Group and Rio Tinto may profit by having to pick up the slack.

Brazil’s northern neighbor Venezuela wishes it could steal even a pinch of the magic that is propelling Brazilian equities as the ‘Bolivarian Republic’ is in a particularly bad place right now. In addition to the usual poverty, mass-food shortages, unemployment, hyperinflation and ruined economy, January brought forth fresh political crisis through the emergence of the leader of the opposition Juan Guaidó. Based on the widespread view that Nicolàs Maduro won Venezuela’s 2018 General Election through fraud, on January 23 Guaidó took an oath to serve as the Interim President of Venezuela. Since then the US, EU and range of European countries including the UK, Spain, France, Germany, Sweden and Denmark all recognise Guaidó as the interim president; meanwhile, Russia, Syria, Turkey, Iran and North Korea still back Maduro. Despite fervent backing for Guaidó among Venezuelans and world leaders, Maduro remains in charge of a country on the verge of collapse, particularly after the US divvied out new punishing sanctions on its oil. While this is devastating blow for Venezuela and the Maduro’s reign, it has only had a positive effect on the price of oil which, along with OPEC-led production cuts – has helped to push US crude oil up by more than 20% to over $55 a barrel, which represents its best January on record.

Investment Outlook

Even before the US government shutdown, we predicted more tempered economic growth; and only 1 month into 2019 the CBO has already wiped 0.2% off its forecast. Of course, the full extent of the shutdown’s damage remains unclear but it is likely that it will be far greater than what initial estimates have suggested as – according to the CBO – they have yet to incorporate the indirect negative effects such as businesses not able to acquire federal permits and certifications, reduced access to federal loans and the overall uncertainty that has compelled firms to postpone important business, investment and hiring decisions. As distressing as this “own-goal” has been to the American economy and its workers, it is possible that another shutdown is imminent if Trump and House Democrats cannot come to a resolution on the budget for the Mexican border wall.

Markets are hoping for a soft-Brexit – or even a scenario in which Brexit is entirely averted – however, if nothing changes between now and March 29, 2019 Britain will leave the EU without a deal. Were this to happen, middle-of-the-road estimates suggest a 9% drop in GDP, which would make the 2009 financial crisis look insignificant by comparison. This would increase unemployment, the cost of borrowing and could crush the value of the pound which could combine to set the UK economy back a decade and would drag other economies and markets with it.

While a possible US-China trade war has hung ominously over markets for several months, we are encouraged that the January trade talks ended positively and we are hopeful that President Trump will visit Chinese President Xi Jinping this February to shore up a preliminary deal and extend the deadline to work through the thornier issues. While it will hardly be adequate for Trump and his team, it is a good sign that China agreed to increase its purchase of American soy. However, until a final deal is agreed, markets will live in fear of a Sword of Damocles in the form of a devastating trade war dangling perilously by a single thread from above.

We believe there is excellent value to be found in EM equities based on their valuations relative to profitability: they are trading at prices lower than their 10-year average but are still posting returns near 13%, which is similar to their DM counterparts. This view is fortified by the Fed’s recent decision to pause the interest rate hikes that caused so much harm to EM equities in the first place; our optimism is also based on a relative calming of geopolitical tensions, particularly on a peaceful resolution to US and Chinese trade.

February Market Commentary
While Bolsonaro has so far been hitting all the right notes with markets, his volatile disposition seems to make him a risk both to himself and to the lofty ambitions on which Brazilian equities and Brazil’s economy are counting.

We expect the Brazilian economy to remain the darling of EM equities and continue its excellent 2019 run; Brazilian stocks should also get a boost from the Fed’s slow down in interest rate hikes. However, Brazilian equities have performed so well recently not because of anything that has been done as much as the potential of President Bolsonaro’s campaign promises – chiefly pension reform. Brazil’s current pension system – that sees men retire at age 60 and women at 55 – and has led to massive government debt: more than 75% GDP according to the Brazilian central bank. Bolsonaro plans to raise retirement age to 62 for men and 57 for women as well as roll back some benefits; yet, failure to enact these changes, and to do so immediately, will push Brazil further into an unsustainable debt profile. Furthermore, while Bolsonaro has so far been hitting all the right notes with markets, his volatile disposition seems to make him a risk both to himself and to the lofty ambitions on which Brazilian equities and the Brazilian economy are counting.

2019 is undoubtedly a year in which not just economic threats abound, but extremely serious ones. If there is another US government shut down, Britain falls out of the European Union without a new trade deal and the US and China breakout into an all-out trade war, the global situation would be dire. Indeed, it would be bad news if only one of these items were to happen. And yet, beyond just blind optimism, one has to be cognizant that world leaders – no matter how seemingly brazen – are unlikely to shoot themselves in the foot in a permanently debilitating way. Both President Trump and Democrats are all too aware of the 2020 Election barrelling towards them and neither will want any part in knocking the wind out of the economy, beyond the damage that has already been inflicted. Regarding Brexit, Prime Minister May will not want to be the premier who cripples the world’s 5th largest economy and while she cannot single-handedly get the Parliament to agree to her deal or coerce the EU to accept her demands, she does have the authority to either extend or cancel Article 50, which would give the UK and EU more time to work out a mutually beneficial arrangement. It must also be said that the EU – despite its draconian stance during the negotiations – stands to be damaged by a no-deal Brexit almost as badly as Britain does, for which reason there will be plenty of incentive on their side to see that a deal is reached. To complete the trifecta, neither the US nor China will benefit from a trade war, which suggests that cooler heads shall prevail, as it seems was the case at the January summit. Therefore, despite the ample threats to markets, we believe that the global economy will make it to the other side relatively unscathed; however, while there will be growth, current conditions and looming threats will make for subdued 2019 growth at best.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its’ representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Who Will Be Affected by China’s Trade War?

After sitting on the cusp of a financial war with China, the U.S.A. has finally unleashed their tariffs on Chinese goods after accusing them of stealing intellectual property in March. This back-and-forth disrepute of imposing tariffs on certain items will have a backlash on the citizens of both countries as China seek to reprimand the U.S. The Chinese have since stated has since stated that although they did not start this conflict, they will fight back.

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Chinese technology is receiving a 25% tariff due to accusations by the Trump administration that the Chinese stole intellectual property which optimizes semi-conductor chips. These chips are found in most electronics, ranging from televisions, personal computers, iPhones, and cars. Unfortunately, it seems that the U.S. consumer will most likely be footing the bill as China’s production pricing will remain the same, but the cost to American citizens will increase by 25%, and the Chinese will not be covering these expenses.

China will not take a hit to its economy lightly and have already planned their retaliation by focusing their own tariffs on a wide variety of U.S. exports. This ranges from plastics, to nuclear reactors, to even dairy making equipment. China must be vigilant and handle these tariffs sensibly as Chinese brokerages are sitting on more than £240 billion of loans that grow riskier by the day as China’s equity market tumbles. Losses on the debt could wipe out 11pc of the industry’s net capital, the U.S. bank reported in July; and we suspect this is something U.S. Administration is aware of.

The reality could be more than fist wagging as this tariff war is the biggest economic attack in history. Although undoubtedly better than boots on the ground, this conflict still poses a threat to Americans and Chinese citizens. Firstly, American citizens have a lot to lose beginning with the aforementioned 25% tax they are going to need to pay on certain goods. Further issues include a shrinking market from Chinese buyers, and even rotting livestock due to smaller demand which will heavily affect farmers in the red Mid-West as they lose access to China’s market and are left with excess goods.

It seems likely that the war will not take place in the open, and the real battle will be “on the flanks in the form of unnecessary inspections, product quarantines, and heightened regulatory scrutiny” says James Zimmerman, a partner in the Beijing Office of International Law.

But in reality, this war affects everyone across the globe. With reduced access to the U.S. market, China’s growth may come to a halt which would have a knock-on effect to all world economies. Increased caution and confidence for business will cause uncertainty within China’s market and puts expansion plans on ice. With the two biggest economies grinding themselves against each other, could there be space for a third party to intervene?