Tags: China | Trump Administration | shiller | market | trade war | theater | trump. china

Nobel Laureate Shiller: Market Overreacting to Trade War 'Theater'

(Getty/Chip Somodevilla)

By    |   Thursday, 16 May 2019 03:16 PM

Nobel Prize-winning economist Robert Shiller warns that the U.S.-China trade war isn’t over from disrupting financial markets just because stocks rallied after plunging earlier in the week.

“I think of it as theater. We have two strong politicians, Xi and Trump,” the Yale University economics professor told CNBC. “This is a human interest story which bleeds over into the markets” said  Shiller, who is known for his behavioral finance research.

President Trump increased tariffs on $200 billion worth of Chinese imports to 25% from 10% last week, Reuters reported. The move is widely expected to raise prices on thousands of products including clothing, furniture and electronics. China retaliated on Monday, though on a smaller scale.

To be sure, global stock markets have been volatile this week. 

“We’ve seen volatility pick up right in response to this crisis,” said Shiller, the co-founder of the Case-Shiller Index, which tracks home prices around the nation.

“Volatility once stirred does have some persistence, and it could continue for months,” said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.

“Tariffs can be evaded by shifting flows around. They’re not the end of the world,” he said. “The market is driven a lot by how investors view what other investors are doing or are likely to do,” said Shiller. 

Shiller said he is hopeful there will ultimately be a deal. “We might see some accord reappearing,” Shiller said.

To be sure, U.S. stock indexes extended gains to trade more than 1% higher on Thursday, as optimism was driven by upbeat earnings from Cisco and Walmart as well as robust economic data that underlined the strength of the domestic economy.

“We are seeing a bounce back rally in markets and it is being driven by fundamentals, better-than-expected earnings and the possibility of lower interest rates,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

“The strength of GDP for the second quarter is yet to be determined, but to the extent that there is a bullish outlook supported by data, that would help top line sales growth of U.S. companies,” Hellwig told Reuters.

Chinese officials said U.S. aggressiveness could hurt the trade talks, which appeared to have hit an impasse in the past week as the United States hiked tariffs on Chinese goods and Beijing retaliated with higher duties on U.S. products.

Chinese Commerce Ministry spokesman Gao Feng stressed that the United States should avoid further damaging Sino-U.S. trade relations. “China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms,” Gao told reporters.

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Nobel Prize-winning economist Robert Shiller warns that the U.S.-China trade war isn’t over from disrupting financial markets just because stocks rallied after plunging earlier in the week.
shiller, market, trade war, theater, trump. china
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2019-16-16
Thursday, 16 May 2019 03:16 PM
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