SWFI: Trade Wars and Protectionism Risk are Realized as Dow Drops

Posted on 08/05/2019


SWFI polls asset owners such as sovereign wealth funds, pensions, endowments, and other end-investors (not money managers). The quarterly SWFI Global Asset Owner Survey gives a sample of the pulse of these global asset owners. These asset owners saw the biggest tail risk as trade wars and increased protectionism since March 2018, only to have the vote intensify each quarter.

“The probability of the biggest tail risk voted among asset owners in our survey is now realized. Boundary lines are being shifted and the impact will be lasting. Just by analyzing trade and foreign reserve data, it was inevitable the two major world powers would come into conflict over trade,” said Michael Maduell, President of SWFI.

The United States has deep concerns about China’s intervention in its currency, since China became a major exporter to the U.S. U.S. President Donald Trump ordered new tariffs on the rest of Chinese goods, as trade talks faltered. China has historically controlled its currency – the yuan. Beijing allowed its currency to weaken, thus the yuan dropped against the U.S. dollar to fall to its lowest level in more than a decade. The yuan was weakened past the psychologically-important 7-per U.S. dollar level for the first time in more than a decade. Trump later accused China of manipulating the yuan, saying in a August 5, 2019 tweet-series, “Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars! China has always….used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”

The Dow Jones Industrial Average (DJIA) dropped 766 points and fell as much as 961 points on August 5, 2019. The S&P 500 index fell almost 3%.

Later on in the day, in a mostly symbolic action, the U.S. Treasury designated China as a currency manipulator for the first time since 1994. In a statement, the U.S. Treasury said that Steven Mnuchin, the Treasury Secretary, “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”

China is major holder of U.S. Treasuries. The Asian giant has substantial U.S. dollar-denominated debt in China. Some of the largest and most indebted companies in mainland China, in sectors such as real estate and commodities, have borrowed massive amounts overseas in U.S. dollars. A weakened yuan would exert more pressure on these indebted companies and the Chinese financial system.

U.S. Trade in Goods with China

Year Exports – Millions USD Imports – Millions USD Balance – Millions USD U.S. President
2018 120,148.10 539,675.60 -419,527.40 Donald Trump
2017 129,797.60 505,220.20 -375,422.60 Donald Trump
2016 115,594.80 462,420.00 -346,825.20 Barack Obama
2015 115,873.40 483,201.70 -367,328.30 Barack Obama
2014 123,657.20 468,474.90 -344,817.70 Barack Obama
2013 121,746.20 440,430.00 -318,683.80 Barack Obama
2012 110,516.60 425,619.10 -315,102.50 Barack Obama
2011 104,121.50 399,371.20 -295,249.70 Barack Obama
2010 91,911.10 364,952.60 -273,041.60 Barack Obama
2009 69,496.70 296,373.90 -226,877.20 Barack Obama
2008 69,732.80 337,772.60 -268,039.80 George W. Bush
2007 62,936.90 321,442.90 -258,506.00 George W. Bush
2006 53,673.00 287,774.40 -234,101.30 George W. Bush
2005 41,192.00 243,470.10 -202,278.10 George W. Bush
2004 34,427.80 196,682.00 -162,254.30 George W. Bush
2003 28,367.90 152,436.10 -124,068.20 George W. Bush
2002 22,127.70 125,192.60 -103,064.90 George W. Bush
2001 9,182.30 102,278.40 -83,096.10 George W. Bush
2000 16,185.20 100,018.20 -83,833.00 Bill Clinton
1999 13,111.10 81,788.20 -68,677.10 Bill Clinton
1998 14,241.20 71,168.60 -56,927.40 Bill Clinton
1997 12,862.20 62,557.70 -49,695.50 Bill Clinton
1996 11,992.60 51,512.80 -39,520.20 Bill Clinton
1995 11,753.70 45,543.20 -33,789.50 Bill Clinton
1994 9,281.70 38,786.80 -29,505.10 Bill Clinton
1986 3,106.30 4,771.00 -1,664.70 Ronald Reagan
1985 3,855.70 3,861.70 -6 Ronald Reagan

Source: U.S. Census Bureau
NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade.

U.S. Trade in Goods with China – By Month

Month Exports – Millions USD Imports – Millions USD Balance – Millions USD
Jun-19 9,034.70 39,002.30 -29,967.60
May-19 9,074.50 39,269.10 -30,194.60
Apr-19 7,896.30 34,798.90 -26,902.60
Mar-19 10,426.50 31,175.70 -20,749.10
Feb-19 8,433.60 33,194.40 -24,760.80
Jan-19 7,134.30 41,603.80 -34,469.50
Dec-18 9,144.90 45,972.10 -36,827.20
Nov-18 8,606.20 46,500.80 -37,894.60
Oct-18 9,139.90 52,202.30 -43,062.50
Sep-18 9,730.00 50,015.00 -40,285.00
Aug-18 9,285.90 47,869.20 -38,583.30
Jul-18 10,134.60 47,120.60 -36,986.00
Jun-18 10,860.10 44,612.10 -33,752.00
May-18 10,428.20 43,965.70 -33,537.50
Apr-18 10,503.80 38,303.90 -27,800.10
Mar-18 12,652.10 38,327.60 -25,675.50
Feb-18 9,759.90 39,020.60 -29,260.70
Jan-18 9,902.60 45,765.60 -35,863.10
Dec-17 13,630.30 44,456.40 -30,826.10
Nov-17 12,707.40 48,107.70 -35,400.30
Oct-17 12,963.70 48,137.70 -35,174.00
Sep-17 10,896.00 45,409.00 -34,513.10
Aug-17 10,824.50 45,788.10 -34,963.60
Jul-17 9,955.20 43,565.90 -33,610.70
Jun-17 9,718.50 42,261.40 -32,542.90
May-17 9,880.10 41,760.60 -31,880.60
Apr-17 9,806.60 37,443.20 -27,636.70
Mar-17 9,720.10 34,162.70 -24,442.60
Feb-17 9,739.80 32,788.30 -23,048.50
Jan-17 9,955.50 41,339.30 -31,383.80
Dec-16 11,644.80 39,358.90 -27,714.10
Nov-16 12,044.10 42,602.60 -30,558.50
Oct-16 12,600.00 43,798.10 -31,198.10
Sep-16 9,521.20 42,020.90 -32,499.80
Aug-16 9,372.90 43,221.80 -33,848.90
Jul-16 9,129.70 39,438.90 -30,309.20
Jun-16 8,845.60 38,539.20 -29,693.60
May-16 8,542.00 37,513.70 -28,971.80
Apr-16 8,679.70 32,920.20 -24,240.50
Mar-16 8,925.60 29,812.30 -20,886.80
Feb-16 8,080.50 36,066.90 -27,986.40
Jan-16 8,208.90 37,126.40 -28,917.50
Dec-15 10,091.10 37,981.00 -27,889.90
Nov-15 10,603.60 41,884.80 -31,281.20
Oct-15 11,324.90 44,309.90 -32,985.10
Sep-15 9,419.40 45,725.00 -36,305.50
Aug-15 9,183.50 44,138.10 -34,954.60
Jul-15 9,505.20 41,215.10 -31,709.90
Jun-15 9,615.80 41,453.80 -31,838.10
May-15 8,749.80 39,082.00 -30,332.20
Apr-15 9,279.90 36,121.40 -26,841.50
Mar-15 9,886.50 41,136.90 -31,250.40
Feb-15 8,754.60 31,564.00 -22,809.40
Jan-15 9,459.20 38,589.70 -29,130.50