U.S-China Trade War impact on Equity Markets, U.S Labour Market, and U.S Business Confidence

The U.S-China Trade War has spreaded uncertainty to the entire world. People are worrying about its negative impacts on the economy. Obviously, trade conflicts between countires can possibly cause significant damanges. However, since there are other factors and noises affecting the economy, it is difficult to isolate and analyze its impact. This article focus on a few important periods, analyzes trends, and gives possible rationales. The emphasises lie on multiple trends of the stock markets, U.S labour market, and U.S business confidence.

Effect on Stock Markets for U.S and China

Equity Markets are usually the first resonders to tarrif or political attitude changes. S&P500 and SSE measure stock performances in U.S and Chinese markets, repectively. The following graph shows the daily closing prices of S&P500 and SSE Composite Index(SSE) from 2018-01 till now.

  • The graph shows a positive relationship between the U.S and China Stock market performance in a long term, with exceptional periods. The positive relationship is especially strong during the periods of 2018-01 to 2018-06, 2019-1 to 2019-02, and 2019-07 to 2019-09. This is a sign that trades and globalization have brought the interest of the two countries together.

  • The trade war had very different impacts on the two countries when the war first started. The trade war started on July 6, 2018 when U.S implemented first China-specific tariffs. Markets in the U.S and China reacted very different. During the period from July 6, 2018 to Oct 1, 2018, S&P500 slowly went upward and increased by nearly 6%. On the other hand, during the same period, the Chinese market responded with greater volitality (SD = 65.09564017), but the index ended at a similar price in October. These suggest that, possibly, the U.S investor believed that the trade war would make a bullish market. At the same time, it had a negative but more subtle effect on Chinese investors. Negativity and volitality came from the uncertainty momentum caused by the trade war. TSSE returning to similar position is probably because medias in China are stricted controlled by the government, in terms of reporting the bad news. For example, U.S paper used the word “trade war” since the beginning. Meanwhile, Chinese medias were only allowed to use “trade conflict” untill recently.

  • From August to September in 2019, negotiation and mutual agreement was put on and off several times. Talks between the two countries was intensive during the period. For example, China suspended U.S agriculture imports on August 6, 2019. On August 13, U.S delayed tariffs on some Chinese good and agreed to talk again in 2 weeks. 10 days after, China slammed US$75 billion tarrifs on the U.S. The changing environment have a more serious impact on the U.S than China. During that period(August - September 2019), S&P500 experienced greater fluctuations than SSE. As the trade war lasted for a long period, the U.S investors have less confidence in winning the war. Meanwhile, the unrelenting attitude of the Chinese government strenthened the confidence of Chinese investors. As a result, a change in the U.S-China tension resulted in greater change in the U.S stock performances.

Effect on U.S Unemployment Rate

Unemployment rate is a indicator for the economic wellbeing. The U.S government suggested that the holdback of trades with China is to bring enployment back to the U.S. To examine the effect of the trade war on the labour market, the U.S unemployment rate over time should tell the story. As shown in the chart, since the beginning of the trade war(July-2018), unemployment level has decreased. This is a good sign for the economy. However, if we look at unemployment level over a longer term, the it has been decreased since 2010. It is not necessarily the result of jobs being brought back from China. Decrease in level can also be a result of the overall wellbeing of the society.

Effect on U.S Total Capital Expenditure

Due to the trade war, people are expecting a decrease in business confidence in the U.S. A decrease in business confidence would usually result in decrease in business spending. However, according to the chart above, the total capital expenditure has been increasing since 2017. U.S companies have been increasing their capital expenditure since 2017. This is a sign that U.S firms have confidence in the future. The trade war did not seem to interfer with that believe.

Conclusion

Comparison between the U.S and China stock indexes gave a complex picture of the trade war impact. The volatile attitudes of the two countires led to uncertain and changing momentum among investors. 14 months into the trade war, the U.S investors began to lose confidence, while the Chinese investors are building positive sentiments. Also, focusing on the U.S economy, the trade war did not damage the economy in terms of business confidence and employment. Again, there are many factors controlling stocks performances and economy indexes. These discussions only provide a few possible explainations based on certain observations.

Globalization have binded the interests of the U.S and China together. Investors who understand this are hoping for peaceful and mututally benefitial trades again.