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The US is Going to Win the “Trade Wars”

The myth of “decoupling”

Prior to the great global economic crisis of 2008, the myth of “decoupling” was highly popular among neoliberals and leftist academics.

The myth stated that the US was declining in economic importance globally. Countries such as Brazil, Russia, India, and China (the BRICs) were going to be the great powers of the 21st century and that their rise was “inevitable,” that it was a good thing as it weakened the “too powerful” US, and that the US would decline peacefully as these new countries created a new multipolar world.

These new power blocs did not need the US. If there was a recession in the US, it was believed these countries were more than robust enough to withstand any serious US economic problems.

There was only one problem – that wasn’t actually what happened, and the 2008 crisis instead revealed how closely interlinked these economies were with the success of the US and their inability to firewall themselves off from US economic troubles.

Flash forward to today, where the market thinks the US will laugh off the troubles in the rest of the world brought on by Trump’s tariffs and Fed rate hikes, and where the market thinks the US will come out the undisputed winner of the trade wars:

One of the fascinating things about the US stock market has been the resilience with which US stocks have decoupled from the troubles in the rest of the world, and more specifically, how tech stocks have continued to plow higher regardless of newsflow, even as most markets around the globe have slumped deep into correction territory.

Indeed, as Credit Suisse remarks in a recent note, while concerns around Turkey have been held up as the primary reason for emerging market underperformance, one shouldn’t forget the significant role played by the sharp decline in the EM tech sector, especially after the recent collapse in Tencent stock and more recently, the sharp drop in JD.com following poor earnings. Since the start of June, the EM tech sector has accounted for c.40% of the decline in the value of EM equities, with the Chinese internet names the primary drivers following recent regulatory challenges and poor results. And, as the chart below highlights, this has opened up a record divergence in tech performance between the US and EM.

Needless to say, such a divergence is unusual: in the 18 months to the end of June this year, both the US and EM tech sectors rose by 50% in USD terms. Since then, the EM tech sector is down 6%, while its US counterpart up by 5%.

The writer of this article goes on to say that China will somehow win the trade war anyway by depreciating its currency. I don’t buy this, because China appears to already be laying groundwork for their capitulation. China would be waiting for Trump to cry uncle if they thought they were winning.

The rest of the world had forgotten what an economic juggernaut the US was, lulled to sleep by the comforting words of leftist academics and their fantasies of a “multipolar” world. They’re now waking up from that dream to a cold reality.

 
Doomberg

Written by Doomberg

I am Doomberg, one of the original founding members of Sparta Report, and have been here since the beginning. I am an insatiable news junkie and enjoy reading and writing about the US territories, the Caribbean, video games, smartphones, and of course conservative politics in general.

I also really like pictures of gas stations and claim full responsibility for the silly gas station motif. I'm presently trapped behind enemy lines in a blue state with no hope of escape! The ride never ends.

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