How to Profit from the Never Ending Loop: The US–China Trade War

Sometimes it feels as if markets have lost the plot.

Negative interest rates, inverted bond yields, more quantitative easing…the list goes on. The global economy and markets the world over have gone to the dogs.

Yet despite all this craziness, I admire the fact that people haven’t lost their sense of humour. When all you can do is shake your head in disbelief, you may as well laugh at just how bizarre reality is.

Case in point, take a look at this graph I found on Twitter the other day:

Money Morning

Source: Twitter
[Click to open new window]

This tongue-in-cheek infographic couldn’t be more perfect. It shows the never-ending loop that is the US–China trade war. A trap that people (and markets) will fall for time and again.

With each new development people expect a different outcome, and every time they end up disappointed. It’s both funny and sad.

Right now we’re at that green line in the cycle.

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Yesterday China even offered a trade olive branch. They’ve agreed to remove 16 American imports from recently imposed tariffs.

Trump then returned the gesture in kind with his own concession. He pushed back his latest round of tariffs two weeks (from 1 October to 15 October) to accommodate the 70th anniversary of the founding of the People’s Republic.

A nice gesture, but still a far cry from any real peace.

They’ll have a chance to settle their differences for good next month though. Another round of trade talks between Mnuchin and Chinese vice-premier Liu He are set for October.

I wouldn’t hold your breath for any real resolution though…

Just refer to the infographic. The quicker you get used to the cycle the better.

Because behind the satirical tone is a serious truth.

Like it or not, the trade war is here to stay.

Institutionalised tension

What you need to understand about this trade war is that it’s bigger than the mainstream think.

Plenty of people love to point to Trump as the cause and the problem. No doubt they believe kicking him out of the oval office will solve that problem.

I think not…

He may have overseen the start of this trade war, but it runs far deeper. As an ex-State Department official (who served under Obama) points out:

Cease-fires will definitely be temporary…

…regardless of Trump’s reelection, the underlying tensions between the U.S. and China are not going away. You may get a shift in rhetoric, or tactics might change, but decoupling is already underway. This is a ‘deep state’ phenomenon…

That last line, like the infographic, is used half in jest and half seriously. We’re not talking about some crackpot conspiracy, the ‘decoupling’ as he calls it is a bipartisan agenda.

The trade war is just the current manifestation of this agenda. As Trump has constantly beat his chest over, it’s a response to the ongoing theft of US intellectual property. He’s worried at the rate of technological progress being made.

More than this though, the real angst is over values. China and the US will likely never be able to truly see eye-to-eye with their current political ideologies. They’re way too incompatible for that.

How they solve this impasse is the trillion-dollar question however. One that is in desperate need of an answer. Sadly, no one has been able to offer up a serviceable and peaceful solution thus far.

Here’s hoping that someone will eventually find one.

In the meantime though, you best get used to an uncomfortable power struggle. And provided it doesn’t result in all-out war, it isn’t necessarily all bad news.

You can still find ways to grow your wealth, even in the midst of a trade war.

How to grow your wealth in the midst of the trade war

At the end of the day whatever happens, the best strategy is to be aware of what’s happening. No matter how unreal it may seem.

The more you see the bigger picture, the clearer the details become.

So, don’t hold out hope for a trade resolution and market rally. Look for avenues that give you exposure to sectors that profit from the instability.

For instance, I work with fellow Money Morning editor Sam Volkering. We scour the ASX for small-cap opportunities that offer unrivaled potential. And right now, one of the biggest opportunities we’ve spotted is in rare earths.

This unique subset of minerals has played a pivotal role in the trade war already. But, it’s the next move that could be the most crucial. If we’re right, it could be the catalyst for a new resources boom.

The further you dig, the more you will uncover. And that’s the beauty in all this.

The trade war has become predictable. At least for those that can see the cycle. Now it is up to you to use that information to your advantage. No matter what form this ‘decoupling’ takes.

It’s just like a game of Monopoly. The board is just on a much bigger scale.

But, if you’re not collecting your $200 every time you pass GO, well…you’re missing out.


Ryan Clarkson-Ledward,
Editor, Money Morning

PS: US–China trade tensions have actually created some incredible opportunities for Aussie investors. Click here to discover three unique plays on the US–China trade war.

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

To find out more about the publications Ryan works on and how you can subscribe, please click on the corresponding link here:

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