Tags: yale | stephen roach | china | trade | war | stocks

Yale's Stephen Roach: US-China Trade War Could Still Hurt Stocks

(Nuthawut-Somsuk/Dreamstime)

By    |   Thursday, 24 May 2018 03:58 PM

Yale University senior fellow Stephen Roach thinks the threat of a vicious trade war between the United States and China is still a distinct possibility.

"The bottom line is China has been one of President Trump's core economic issues, and I'd be surprised if he just capitulates on this," Roach recently told CNBC.

"We have to look at the risk of some type of trade tensions very seriously," said Roach, who was Morgan Stanley Asia chairman for five years.

"Tariffs are a bad thing. Trade wars are not easy to win, as the president seems to suggest," he said.

U.S. stocks dropped on Thursday, but were well off the session lows hit after President Donald Trump canceled a summit with North Korea’s Kim Jong Un and threatened to impose tariffs on auto imports, Reuters reported.

Trump canceled the June 12 meeting citing Pyongyang’s “open hostility,” even after North Korea followed through on a pledge to blow up tunnels at its nuclear test site.

The market, already lower due to a slide in oil prices and worries over Trump ordering a national security investigation into car and truck imports, dropped sharply after the meeting was called off.

The autos probe, ordered on Wednesday, could lead to new tariffs and China called the move an “abuse” of the national security clauses and said it would defend its interests.

Market participants said the drop after the summit was canceled was a knee-jerk reaction.

“Really not sure why people are looking at it so negatively, except when world politics is unstable, investors’ knee-jerk reaction is to sell first and ask questions later,” said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

Roach warned that the market will remain vulnerable to any such sudden shock.

"We had a valuation spike early this year. The market moved up parabolically in 2017. We've come off a little bit in the last four months," Roach said. "But the price-earnings ratio that I look at cyclically, the adjusted price-earnings ratio, is still overextended by any standard of the imagination."

Roach said it's hard to have confidence in White House trade policy when Trump administration officials are constantly changing their minds.

Treasury Secretary Steven Mnuchin told CNBC on Monday that trade talks with China have yielded "very meaningful progress." About 24 hours later, President Donald Trump contradicted Mnuchin — declaring he wasn't satisfied with the recent trade discussions, CNBC.com explained.

"The Treasury secretary says one thing, one day. And, the president says something the next day," Roach said. "It's, sort of, back and forth in terms of getting clear and direct messages in what to make of this."

(Newsmax wire services contributed to this report).

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Yale University senior fellow Stephen Roach thinks the threat of a vicious trade war between the United States and China is still a distinct possibility.
yale, stephen roach, china, trade, war, stocks
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2018-58-24
Thursday, 24 May 2018 03:58 PM
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