1871, Italy.
After waging war among one another for much of the 19th century, states on the Apennine Peninsula finally managed to unify under a single entity, the Kingdom of Italy.
The young nation, led by King Victor Emmanuel II of Sardinia, was ravaged by war, fragmented regionally, and suffered from widespread poverty. The Italian leadership turned to protectionism to foster its infant economy and terminated a trade agreement with one of its largest trading partners at the time, France.
Italy imposed high tariffs on the import of French goods in a bid to protect the domestic industry from foreign competition. The move insulted the French, and, unwilling to negotiate, they imposed punitive measures. Retaliation followed retaliation, and the damage spread, negatively affecting other trading partners.
Ultimately, the situation pushed Italy to seek new partners. In 1882, it joined the Triple Alliance with Germany and a recent enemy, the Austro-Hungarian Empire.
The United States Of Asia-Pacific
Today, we see similar dynamics playing out.
The United States has initiated a new era of protectionism, forcing its former trading partners to seek new alliances.
Two weeks ago, Vietnam’s National Assembly ratified a landmark 11-country deal that will cut tariffs across most of the Asia-Pacific at the start of 2019.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is the successor of the TPP (Trans-Pacific Partnership), which, until recently, included the United States. Even without the United States as a member, CPTPP is an historic deal, as it will represent 13.4% of the global GDP, making it the third-largest free-trade area after the North American Free Trade Agreement (NAFTA) and the European Single Market.
And this could be just the start. Eleven countries are now signing onto the CPTPP, but other nations are drafting agreements as we speak. They, too, want to diversify away from the increasingly unreliable United States.
This month, world leaders met in Singapore to address global and regional trade. The focal point of the summit was the Regional Comprehensive Economic Partnership (RCEP).
RCEP includes 16 countries, including ASEAN nations, China, Japan, India, South Korea, Australia, and New Zealand, but not the United States. If the deal goes through, it will encompass some of the fastest-growing economies in the world, almost half of the world’s population, and over a third of the world’s GDP. It will surpass NAFTA as the world’s largest free trade zone.
Beijing is pushing hard to ratify the superpact, with Premier Li Keqiang saying they would “work with all relevant parties to expedite” RCEP negotiations. The support is understandable. A successful deal would drastically increase the chances of Chinese winning the current trade war with the United States.
G20 Meeting Marks A New Dawn For Emerging Markets
This week, China’s President Xi Jinping and President Donald Trump will meet on the sidelines of the G20 meeting in Buenos Aires, Argentina, to discuss the ongoing trade dispute. Things are looking positive ahead of the meeting.
Beijing’s rhetoric towards trade war has been milder than Washington’s, and the Chinese recently demonstrated their willingness to put their money where their mouth is. A list was sent to the White House this month describing measures China was willing to take to resolve the trade dispute. President Trump welcomed the move.
“We may not have to do that,” Trump said regarding additional tariffs. “China would like to make a deal.”
The truth is, it’s not just the Chinese looking to strike a deal.
Trump may be acting as though he doesn’t care, but he has just as much to lose from a trade war as do the Chinese. His reputation as a successful dealmaker is on the line, as is the wealth of the people who put him into power. A no-deal outcome is something President Trump can’t afford at this stage if he wants people to remember his presidency as one of a robust economy and a burgeoning stock market.
How To Profit From The Trump-Xi Meeting
The current situation dictates that the two countries restrain themselves from imposing additional tariffs. Hoping for a full trade deal is probably optimistic, as there hasn’t been enough time to negotiate the intricacies.
Nonetheless, agreeing to forgo additional tariffs would be a positive sign for the U.S. stock market, which has been suffering these past few months. The Dow Jones Industrial Average and the S&P 500 are unstable, and a no-deal outcome would tank them.
While you would be smart to bet on the recovery of the U.S. stock market, if the Trump-Xi meeting is positive, stocks in the emerging markets offer much greater upside. Many emerging market companies are trading far below where they should be, creating a once-in-a-decade chance to grab solid blue-chip companies at incredible discounts.
I’ve been traveling extensively in key emerging markets in an effort to identify opportunities to invest at bottom prices. After months of extensive research, I have identified seven emerging market stocks that will benefit the most from the upcoming trade deal.
Good Investing,
Leon Wilfan
