In view of the developments this week regarding US-China trade, I asked our chief investment strategist, Byron Sanders, what his thoughts were and if we should be making any tactical portfolio adjustments at this time. I think his comments are particularly instructive and worthy of sharing. Here is what he had to say:
"I am convinced the US has the far stronger hand in this confrontation. It's really a big poker game at this stage and we have better cards and a bigger pile of chips. But the immediate and forceful market reactions to progress or impediments in the deliberations suggests that a clear pattern or conclusion remains unknowable. Because of that, I would argue against making any tactical moves to reposition for or against an agreement. We really don't know what is going to happen so it's difficult to rationalize making any investment decisions based on perceptions of the state of this situation. My attitude has always been that during times of high volatility or pervasive uncertainty, the best course of action is to "stand still."
It's entirely possible and even likely, that the Chinese are trying to play American politics, betting that going back on written concessions will increase pressure on Trump and bank on his desire to strike a deal. What they're clearly seeking with their latest moves are some nominal concessions they could herald as a "victory." It's important to remember that the substance of these talks is about eliminating the unfair trade practices surrounding intellectual property theft and draconian policies for joint corporate ownership in China. These are the Chinese positions that we seek to erode or eliminate. We've imposed tariffs, they've retaliated but the fact is that we get more from them than they get from us, which gives us greater leverage. Tariffs brought them to the table and this latest gambit is a bid to reverse or modify them. Trump has responded by raising existing tariff rates and adding more goods to the list, which cannot be good news for their negotiators.
I think that if the Chinese expect Trump to fold or even strategically retreat, they are making a mistake. Stalling and betting on a new administration in 18 months that is more like past negotiators impresses me as a Hail Mary strategy. Their economy is being far more negatively affected than ours. The sentiment here turns positive or negative with every news item on the talks, but in China, the damage is real, empirical and accelerating."