The US and China trade war: The world in transition

The US and China trade war has escalated in recent months with tit for tat moves being made on an almost daily basis between both sides (another article on this can be found here). But, this is not a recent phenomenon; China has been pegging the Yuan to the USD for decades, and things aren’t likely to change any time soon. 

So why all of a sudden is the currency manipulation and tariff protection so important?

According to Harvard (Boston, US) lecturer Vikram Mansharamani, the reason(s) come back to the four critical transitions that are affecting the world at present:

  1. China;
  2. Technology;
  3. Energy; and
  4. Demographics.

China is, of course, in a rapid phase of growth associated with industrialisation, while dramatic technological change is happening at lightning speed all around us. These changes are being driven by a staggering range of new technologies that are transforming the way we live, work and relate to one another.

The energy transition towards more renewable energy and diversified supplies is creating opportunities and challenges. The rebalancing of energy supply and demand is, according to the World Economic Forum, leading to a new global energy security order.

All of these three transitions are resulting in more supply, while the changing global demographics in the developed world results in less demand. With this supply/demand imbalance, it comes as no surprise that we have a trade war between the US and China.

Given the increased supply and decrease in demand, it is also little surprise that the world is fighting deflationary pressures; low-interest rates are having little if any, impact.

From a financial advice and investment perspective, the opportunity in the decade ahead is likely to be in infrastructure investments as the world moves away from ineffective monetary policy to even more fiscal spending by governments eager to appease and stay in power.

Sound financial advice is to stay invested, own equity in Australia and the globe’s best companies, have a good allocation in infrastructure and new technologies, and then reap the long-term benefits through what may be the greatest decade of investment opportunity in our lifetimes.

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