Growing trade tensions call for investor vigilance

As trade tensions continue to heat up, now is the time for investors to carefully consider whether their portfolios are well-positioned.

Read: Are your clients at risk from protectionism? Experts weigh in

“There really hasn’t been any major asset class or any part of the world [that U.S. President Donald] Trump hasn’t spoken out against in recent weeks,” says Nigel Green, founder and CEO of deVere Group, in a release. “As such, if investors are serious about growing and safeguarding their wealth, complacency should no longer be an option. Vigilance is crucial.”

For example, he says investors should ensure they have properly diversified portfolios.

“As history teaches us, diversification is the best way an investor can position themselves to mitigate risks—and also, importantly, to benefit from the buying opportunities that all bouts of market volatility present,” says Green.

Though he says that Trump’s trade tactics are likely negotiating strategies and that he doesn’t expect a total overhaul or disruption of trade patterns, Green also says investors should be on guard and review and rebalance their portfolios as necessary. Further, investors should expect volatility.

“Investors need to brace themselves for months of heightened posturing from the different parties, which is likely to increase market turbulence,” says Green.

Trade tensions also put a spotlight on the performance of fund managers.

“As Trump potentially marches off to a trade war, a good fund manager will help investors sidestep the risks and embrace potential opportunities,” says Green.

Read: As tariff retaliations heat up, National Bank reconsiders investing strategy

In a weekly financial digest, BMO chief economist Douglas Porter notes the challenge of separating trade noise from trade fact. And, with the U.S. economy on track for its strongest year since 2005, it’s less vulnerable to trade weakness than most other major economies, potentially causing investors to underestimate risk.

Says Porter: “In that context, the global trade dispute still seems like a distant risk to many commentators, rather than the very real clear and present danger it has become.”

Read: Canadian and U.S. stocks to watch as trade heats up

Latest tariff tussles

Late last month, Trump infuriated U.S. allies—from Canada and Mexico to the EU—by imposing tariffs of 25% on imported steel and 10% on aluminum. The president justified the move by saying imported metals threatened America’s national security—a justification that countries have used rarely because it can be easily abused.

Also threatened are auto import tariffs for both Canada (up to 25%) and the EU (20%).

The White House has further announced plans to slap 25% tariffs on 1,100 Chinese goods, worth US$50 billion in imports. The Chinese have said they will respond in kind. Trump said he would then retaliate with more tariffs.

All told as of late last week, US$450 billion in potential tariffs would cover nearly 90% of goods China sends to the United States.

Trump has also started a trade fight with China over Beijing’s sharp-elbowed efforts to overtake U.S. technological dominance. China’s tactics range from forcing American companies to hand over technology in exchange for access to the Chinese market to outright cybertheft.

The Wall Street Journal has reported that the Trump administration plans to impose curbs on Chinese investment in American technology companies and high-tech exports to China.

The newspaper, citing unidentified sources, said the initiatives were aimed at preventing Beijing from moving ahead with plans to develop companies able to compete globally in technologies including biotech and electric vehicles.

Europe and China join forces on trade

Europe and China are forming a group aimed at updating global trade rules to address technology policy, government subsidies and other emerging complaints in a bid to preserve support for international commerce, the vice-president of the European Union’s governing body said Monday.

Jyrki Katainen, European Commission vice-president, said unilateral action by the U.S. president in disputes over steel, China’s technology policy and other issues highlighted the need to modernize the World Trade Organization to reflect developments in the world economy.

U.S. officials have said the WTO, the Geneva-based arbiter of world trade rules, is bureaucratic, rigid and slow to adapt to changes in global business and needs an overhaul.

Katainen said he did not expect negotiations on updating trade rules to be easy but that they were necessary to save the environment for multilateral trade.