The Long Trade War

If Trump’s “Liberation Day” was only two weeks ago why does it feel like an eternity? Because it’s been a hard two weeks that followed a hard six weeks. The U.S. stock market peaked in mid-February, after an initial run up following his election, and has been trending downward since. Here are a couple of tables that show you how markets are doing since his election in November 2024. The first one includes the eleven sectors in the S&P 500. As of the close of the market last Friday only Consumer Staples (XLP) was up. The other 10 were down, with Energy, Materials and Technology down double-digits.

The second one is more eclectic, showing domestic and foreign stocks, bond yields and ETFS, even gold, silver and bitcoin. 

I find those that are up to be a fascinating group:

1.The 10 year Treasury yield is up slightly, although everyone is already on “recession watch”. Long term yields usually drop as economies roll over into recession. The fact that this is up may indicate that a “recession watch” is premature. Others are suggesting it’s the result of foreign countries selling their U.S. Treasury bond holdings, weakening demand, and driving yields higher.

2. KWEB is an exchange traded fund that holds all the major Chinese tech stocks. It is also up slightly while Apple, Alphabet, Amazon, Microsoft, Nvidia, Meta and Tesla are all down a lot. Makes me say Hmmm! 

3. BUG is an exchange traded fund that holds all of the major U.S. cybersecurity stocks. Cybersecurity being up makes sense to me. 

4. Gold, silver and bitcoin are all up. Gold may turn out to be the ultimate winner during this trade war. Goldman Sachs recently upgraded their price target to $3700 per ounce. It’s at $3250 today. They also say that it may have an “upside tail risk” of $4,500. 

ZeroHedge.com reported this today:

Andrew Matthews - UBS' Global Head of Precious Metals Distribution - just returned from his annual precious metals trip to China and even more optimistic about the barbarous relic:

• Sentiment – in one word: optimistic. Despite Trump tariffs and China’s property/stock markets on the ropes, the launch of DeepSeek in January has generated a sense of national pride and with expectations of appropriate government stimulus, the general sense on the ground is positive towards China’s economy.
  
• “TINA” (There is no Alternative) effect to gold holds strong within the investment community. ETF demand has been strong and appetite for small investment bars is picking up in response to the weaker CNY.
  
  
• While jewelry demand continues to be weak on price elasticity (down about 24% in 2024 per World Gold Council Gold Demand Trends), demand for high-end, crafted jewelry is rebounding.
  
  
• De-dollarisation is the key underlying theme and the official sector is leading by example; institutional and retail investment flows should follow. There is a general growth in kilobar imports into the International Board of the SGE (SGEi). Anecdotal feedback estimates the SGEi accounted for up to 30% of kilobar imports into China in 2024, a route that strips out bilateral dollar trade where transactions are denominated in CNH.
  
  
• Insurance companies. Adding to demand optimism is the directive from China’s regulatory authorities that allows insurance companies to invest 1% of their assets in gold instruments traded on the Shanghai Gold Exchange. Presently this translates to 400 tons of gold. For a market that runs a deficit of 900 tons a year, that is meaningful delta. In terms of timing, feedback indicated that while a handful companies have done test trades, it will be a slow burner over coming years.
  
• SGE is close to de-stocking and the basis above Loco London which was positive in March 2025 has widened to a high of $40/oz this week. There was general optimism that import quotas will be awarded in the near future. 

UBS confirms Goldman's outlook, hiking their forecast for gold to $3,500, noting that they see considerable potential for strong buying from China across institutional as well as retail investors – sentiment onshore is very bullish and there are indicators of pent-up demand. We expect additional demand from central banks, institutions, and private investors following current events (i.e., trade war, poor US Treasury auctions, and an ongoing de-dollarization trend). 

All the prices on these tables change frequently, and we update them frequently to help us maintain perspective on what is going on. It’s way too early to tell who all the long term winners and losers are going to be. Much of that depends on how everyone in this trade war plays their cards. Trump keeps changing the way he plays his. The Washington Post reported today that “even some of Trump’s advisors privately acknowledge that they lack clarity about goals”. They also reported this comment from Dough Holtz-Eakin, President of the American Action Forum, a center-right think tank that is skeptical of Trump’s tariffs, “We have no idea what they want from other countries, and worse is that other countries don’t know what Trump wants from them.”

Chris Roth wrote a very good piece just a few weeks ago in which he identified the three things Trump is using tariffs for. 

“If you break it down, he wants to use them for three main reasons: 

1. Negotiation tool: He wants to use tariffs as a stick during negotiations with other countries. All my experience, and all of my training, inform me that if you “carry a big stick” bring a carrot too! Trump doesn’t seem to get that part. He is going to win some concessions, but he is also giving China a huge opportunity to make gains as well. Countries that have always identified as allies of the U.S. are not appreciating the big stick approach.

2.  Revenue generator: He also wants to bring in new tax revenue. He’s even promised to bring in so much revenue that Americans wouldn’t have to pay income taxes anymore! Tariffs are a tax, and a regressive one. They are applied at the same rate, regardless of income. They hurt “the little guy” the most. Besides, as Chris points out you need to leave them on, not bargain them away, if you are going to use them as an income generator. If income generation is the goal, I can understand a 20% tariff on a Ferrari, Lamborghini, or Maserati. If you plan to spend $400,000 for a car an extra $100,000 is not likely to deter you from buying it. The U.S. can put that extra 100k in the U.S. Treasury! But I don’t understand a 20% tariff on a $35,000 KIA, that drives the price to $42,000 for a single mom just trying to make ends meet! 

3. Job creator: He wants to use tariffs to restore American manufacturing back to its glory days. He wants to selectively use tariffs to shield industries that have suffered due to cheaper import options. We do need to bring certain manufacturing back to the U.S. It’a as absurd to me as it is to Trump that we are dependent on a chip manufacturer in Taiwan for most of the chips we buy. We need to manufacture here! It is absurd to me that China can build hundreds of tanker ships in the time it takes us to build five! We need to change that as quickly as possible. On the other hand, will it ever matter to the U.S. if we “reshore” the manufacturing of socks? I think not. Trump needs to specify what manufacturing he wants to reshore, focus on it, and let the rest go. If manufacturing chips and building more ships in the USA is the goal, let’s get on with it. We’d remind Trump that “The Chips Act” passed by Congress in 2022 was already a good start. For more on “The Chips Act” you can click here to read more on it.

It's only been two weeks since “Liberation Day”, but I’m already reminding myself to be prepared for these negotiations to take months, rather than days or weeks. That could mean months of uncertainty for markets. Hopefully when it’s all over it will have been worth it! 

The first step for Trump’s administration should be to provide clarity and specificity about objectives. A great second step would be to try to heal some of the unnecessary bad will that has been created between the U.S. and former allies. The Economist offered this comment on April 12, 2025, “A more promising route for America was to marshal its allies into a free-trade bloc large enough to force China to change its trade practices as the price of admission. This was the strategy behind the Trans-Pacific Partnership, a trade deal that Mr. Trump binned in his first term. Scott Bessent, the treasury secretary, talks of doing a trade deal with allies and approaching China “as a group”. But now that it has bullied its allies and reneged on its past deals, America will find they are less willing to co-operate.”

We made reference to the Trans-Pacific Partnership in our newsletter published on February 28, 2025, “Trump called USMCA “the best trade agreement ever negotiated”. Now he is repudiating it. Also consider that 12 Pacific rim countries took 8 years to negotiate the Trans-Pacific Partnership (TPP), from 2008 to 2016. The United States played a very key role in those negotiations. Other original members of TPP included Japan, Canada, Australia, Mexico, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Trump repudiated the agreement in 2017, before Congress was ever able to ratify it."

Scott Bessent has seemingly emerged as somewhat a “voice of reason” within the administration. We don’t know if he can accomplish his goal of “doing a trade deal with allies and approaching China as a group”, but we would be more hopeful about positive results from that approach.

All the best, 

Paul

Paul Krsek
CEO
5T Wealth, LLC
Main (707) 224-1340
595 Coombs St
Napa, CA 94559

Disclosure and Disclaimer - Updated last on March 20, 2024 by Paul Krsek: 

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