Just one day after the market suffered one of its worst daily drops for the year, it looks like equities are back.
And more importantly, investors seem ready to shake off the tariff anxiety from last week. Across the board, the major indexes have risen nicely, with the S&P and Dow both enjoying a gain of roughly 1.3% as of midday.
Even the tech sector is recovering after getting gouged on Monday, as evidenced by the SPDRs Select Sector Technology ETF’s (NYSE: XLK) 1.50% rebound.
The newly found optimism, which has oddly arrived right after a trade war escalation by the Chinese, looks to put stocks back into their normal price range – suggesting that even during a time of economic conflict, bulls might still have something to be happy about.
And yes, I know what you’re thinking…
“Nobody should feel good about a tariff hike from both the US and China!”
In general, heaping import taxes upon goods – ones that American corporations rely on – is not considered an economic boon.
Especially for the world’s biggest importer (the United States).
But along with the new tariffs comes a shift in strategy from China – one that looks to modernize the nation in a full-scale “facelift”.
Long-term, China wants to get away from being a cheap-o exporter and morph into what the United States has become – a producer of top-flite intellectual property (IP) and paradigm-shifting corporations.
Up until now, the Chinese have more or less been IP copycats, stealing the best ideas from western (and even a few eastern) companies that want to do business in the region.
And In doing so, they’ve stunted their own ingenuity. Innovation is largely suppressed in Chinese culture, as the way to “get ahead” (in most facets of life there) simply revolves around copying and/or cheating the system.
It’s a massive issue facing the Chinese people, and one that many eastern economists see as their biggest obstacle in moving forward with their future plans.
Which based on their recent reneging of the trade deal, involves less reliance on exports.
It’ll be a tough hill for Xi Jinping & Co. to climb, but it’s a challenge that they eventually had to meet head-on. After Trump threatened them with tariffs of his own, they figured the time to undergo an economic renovation was upon them, and levied duties on American imports in response.
In the end, disappointingly for the Trump administration, the trade war may have only severed the ties between China and the US – delinking the two nations from one another economically.
And eventually, even though it might sting a bit at first, American importers will find new suitors.
As will the Chinese.
And you know what?
That’s okay. It really is.
Because the sooner the US and China become less “addicted” to one another, the better – for both their domestic economies and the global economy as a whole.
Over the years, China has in many ways become like an oil producing nation – relying on one facet of its economy (manufacturing instead of oil in this case) to power the country. By walking away from negotiations with the US, they’ve officially entered “sink or swim” territory, forcing themselves away from exports in the process.
American investors seem to be okay with that as of this morning, as evidenced by today’s sharp market recovery. The tariffs, though scary, aren’t the end of the world, and long-term could actually nudge China into becoming a more ethical economic powerhouse – something that would be good for everyone, the US included.
