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After extensive trade talks with China ended without an agreement, President Trump on May 10 raised tariffs from 10 percent to 25 percent on another $200 billion in Chinese imports. China retaliated three days later, announcing new tariffs on $60 billion of American exports.
Stock markets didn't like the news. Though U.S. stocks fell 6.43 percent in May, international stocks did slightly better, declining 5.51 percent as measured by the total return of the broadest stock index funds. In fact, the NASDAQ briefly entered correction territory, defined as down by 10 percent from its high. Bonds, on the other hand, did quite nicely, with the broadest investment grade bond fund gaining 1.84 percent.
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I've had several people ask me what to do. I respond that I don't know a thing the markets don't already know.
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Whether the trade war is quickly settled or gets far worse is something we're all going to have to wait and see. The same is true for the possible tariffs with Mexico, though the immediate threat seems to have subsided.
We all benefit from free trade. Can you imagine if each U.S. state put tariffs on goods imported from other states? Such protectionism would be bad for all. Thus, it would be bad as well for other countries, though the trade must be fair. Yet fairness is a subjective concept and at the center of the war.