The implementation of the first round of new U.S. and Chinese tariffs has prompted some tea-leaf readers this hot summer to come to a boil about the markets and exclaim "Sell everything!"
But before you take any action that would pre-empt your game plan, here's a handy summertime hint: Stay cool with your investments.
Let's review the catalyst to the recent worries. U.S.-China trade tensions escalated after the Trump administration said it would implement the previously announced 25 percent tariff on $50 billion of Chinese goods "that contain industrially significant technologies" — i.e., those that were highlighted in President Xi Jinping's Made in China 2025 project, which explicitly focuses on boosting that country's capabilities in sectors where the United States is currently a leader.
The list of products covered 1,102 goods, targeting specific Chinese industries including aerospace, information and communications technology, robotics, industrial machinery, new materials and automobiles. In turn, Beijing said it would impose 25 percent tariffs on 659 U.S. goods worth $50 billion, including agricultural, automobile and seafood products. The first phase of both the U.S. and Chinese tariffs ($34 billion) went into effect July 6.
On July 10, the Trump administration released a list of an additional $200 billion worth of Chinese imports that will be subject to a 10 percent tariff. The items could more directly impact consumers because they include food products, shampoo, handbags, gloves, digital cameras, television components and refrigerators. While no date has been set, the new round could go into effect in September.
While the U.S. Chamber of Commerce said the tariffs would place the "cost of China's unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers and ranchers," there is also the possibility that if wholesale prices rise, those increases will not be passed on to consumers.
For example, motorcycle maker Harley-Davidson said it would move some of its production overseas, rather than increase its prices. That said, Harley also noted that it would earn less money this year as a result of the tariffs.
Some investors are worried that the tariffs will negatively impact the global economy and, as a result, stock prices of multinational firms will come under pressure.
But according to the analysts at Capital Economics, which says it's an independent economic research company with offices worldwide, "both the U.S. and Chinese economies are predominantly domestically focused. Neither will be brought to their knees by this trade dispute. But it could have the effect of throwing some grit into the economic gears," which they estimate at less than a quarter-point reduction in economic growth for both countries.
Of course that assessment is predicated on no further escalation of the trade conflict.
The Trump administration has said that it is reviewing another potential $200 billion worth of goods, which could prompt a Chinese reaction. You can see how all of this could get messy quickly, which has some investors trying to outsmart the news cycle and sell stocks now, before the tariff tiff becomes a more dangerous war.
To that, I repeat the advice I proffered earlier when stock markets corrected: If you don't need your money for at least five years: Do Nothing. When it comes to heated rhetoric on trade and bumpy markets, you best bet is to stay cool and limit your investment activities.