Sunday, April 8, 2018

Tariffs, Tit-for-Tats and Trade Wars

Recently the financial markets are jittery over trade issues between the two largest economies of the world, China and the United States. With figurative blows at each other, the markets are experiencing a roller coaster ride of sorts. Over the past five days from 2 Apr to 6 Apr, the S&P 500 index swung between 2558 and 2671 points1, while our STI fluctuated between 3339 and 3445 points2.

While it is not confirmed whether some or all of these tariffs will come to fruition, such news could bring butterflies to most stomachs. Though some may consider these market swings as minor, in reality we do not really know what is in store for investors in the future. So in case of a trade war happening, what should we do about it?

Think Regional and Country

Though the atmosphere of the markets may be pessimistic, there are some places in the world that are not affected by tariffs totally. Since tariffs work on imports and exports, economics 101 dictate that if goods from a certain place get more expensive, it would be natural to source them cheaper from another location. This “another location”, in turn, would reap the benefits, ceteris paribus.

For example, Australia is seen as one of the likely beneficiaries if a trade war happens, as it could provide what is on China’s tariff list of American products, such as wine, steel, etc3. Also, China’s proposed tariffs on American soybean imports may prompt Chinese buyers to source the beans from elsewhere, which could be Brazil or Argentina, the next largest producers4.

With this information, you could consider investing in counters and ETFs that has exposure to these regions and countries.

Think Domestic

Ironically, we could also look at the domestic markets of China and the United States. Sounds oxymoronic? Not really. Again a reminder, tariffs affect imports and exports, so we could look at sectors and companies in those countries that have minimal exposure to the items on the tariff list.

Goldman Sachs recommended companies that have large domestic sales exposure5. This seems to be a legitimate reason as the revenues of such companies are not affected by trade wars, since their customer base is mostly from within.

Thought, Final

Overall the strategy and maintenance of the Bedokian Portfolio in terms of your preferred asset allocation, as well as the basic rules such as the 12% limit6 still holds paramount. Furthermore, we do not know if the looming trade war is ever going to happen. In investing, the most important thing is to stay calm and react accordingly should any event occurs.


1 – Yahoo Finance. S&P 500 Index, 2 – 6 April 2018. https://finance.yahoo.com/quote/%5EGSPC/ (accessed 7 Apr 2018)

2 – Yahoo Finance. STI, 2 – 6 April 2018.  https://sg.finance.yahoo.com/quote/%5ESTI/ (accessed 7 Apr 2018)

3 – Neuman, Scott. Who Wins A U.S. – China Trade War? Maybe Australia. National Public Radio. 3 April 2018. https://www.npr.org/sections/thetwo-way/2018/04/03/599081151/who-wins-a-u-s-china-trade-war-maybe-australia (accessed 8 Apr 2018)

4 – Karuga, James. 10 Countries With Largest Soybean Production. Worldatlas. 25 April 2017. https://www.worldatlas.com/articles/world-leaders-in-soya-soybean-production-by-country.html (accessed 7 Apr 2018)

5 – Kim, Tae. Goldman Sachs says here’s where to invest during a global trade war. CNBC. 4 April 2018. https://www.cnbc.com/2018/04/04/goldman-sachs-on-where-to-invest-during-a-global-trade-war.html (accessed 8 Apr 2018)


6 – https://bedokianportfolio.blogspot.sg/2016/10/the-12-limit.html

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