The world watches intently as the U.S. and China go head to head over exports and manufacturing. Since the start of 2018, the two powers have imposed billions of dollars of tariffs (essentially taxes) on goods from one another’s countries in a so-called “trade war”.
In March 2019, the POTUS announced a blanket tariff on aluminum and steel, followed by a 25% tariff on $50 billion worth of Chinese goods. The moves have set off an escalating chain of events between the U.S. and China - the result of which remains to be seen.
In response to these tensions between the two major powers, many global markets, including the U.S. stock market, have seen dramatic ups and downs. The tendency is that when tensions ease, stocks rise, and when tensions are high, they fall. Inconsistency in the stock market may be unnerving, but it shouldn’t be a cause of concern for retirees or anyone thinking about retirement planning. In this post, we’ll tell you why.
Why Trade Tariffs are Not a Cause for Concern
Drops in the stock market will almost always provoke alarmist reactions – however, there’s no need to panic. The U.S. economy remains strong overall, which means it can handle any shockwaves created by the so-called “trade war”.
Rest assured there are systems in place to help keep the balance when things get rough.
Federal Reserve and Other Central Banks Create a Cushion
While the Federal Reserve cannot fully offset the economic impact of imposed trade tariffs, they can take measures to provide a cushion against the negative effects. More specifically, they implement offsetting stimuli such as lower interest rates, which tend to cause a boost in the stock market.
Back in July and September 2019, the Federal Reserve cut interest rates by a quarter percentage point (.25%) each time in response to economic uncertainties. And the U.S. central bank is prepared to move aggressively if the U.S. economy shows additional signs of distress.
Central banks in other economies including Asia, Europe, and New Zealand have also cut interest rates to stabilize inflation and give their currencies a boost.
Wall Street Expects a Deal with China Eventually
The United States and China are slated for trade talks in early October in Washington D.C. – both sides have good motivations to strike up a compromise.
According to the Wall Street Journal, China has already made some moves to show they are ready to break the deadlock, including increasing the purchase of U.S. agricultural products and exemptions to some tariffs on U.S. imports. They’ve also proposed taking sensitive national security issues off the table to increase the likelihood of a deal.
As for the U.S., most recently the POTUS offered a “goodwill gesture” by delaying a 5% hike in the tariff rate imposed on Chinese goods. Experts speculate that as we move towards an election year, the current administration will be more likely to consider how the tariffs’ economic impacts will affect U.S. voters. The apparent easing of tensions has caused stocks to bounce back recently and, some say, all signs point to a deal.
The Best Long-Term Retirement Plan Can Handle Ups and Downs
At Wealth Legacy Institute, we know investing can be intimidating even when the markets are steady – and even scarier when things seem rocky. The good news is, while markets will always fluctuate, a sound retirement plan is built to last.
A fiduciary financial advisor (who is legally required to act in your best interest) helps you create a personal retirement plan that’s right for your financial goals - and a solid plan to achieve them. The emotional side of investing makes it even more important to partner with a fiduciary financial advisor to help you achieve your personal retirement goals.
Regardless of what the Fed or the executive branch may do, your best strategy is to stay focused on the long-term. Get a retirement planner in Denver such as a CERTIFIED FINANCIAL PLANNER to help you create a long-term plan that relieves anxiety, trade tariffs or not:
- Apply patience and a long-term approach to retirement planning
- Avoid a flawed "buy low, sell high" mentality
- Balance your risk and return
- Maximize returns through a multifactor investing model
While the media may always provide fuel for anxiety, keep your eye on the prize and remember that long-term wealth management can handle a few bumps in the road.