May was a bad month for global investors who experienced $4 trillion in losses as stocks tumbled amid intensifying global trade tensions. But those losses may be just a sign of further damage to come, as U.S. President Donald Trump threatened to impose new tariffs on imports from Mexico late last week, and some Wall Street analysts see the U.S.-China trade war lasting for decades, according to Bloomberg.   

“This contest will be a drawn-out process that will likely last our careers,” said former IMF economist Stephen Jen, who now runs hedge fund and advisory firm Eurizon SLJ Capital. Jen told Bloomberg that he believes we’re just witnessing the beginning of what will turn out to be a 15-round fight. 

A Clash of Economic Titans

  • U.S.-China trade war could be drawn out for decades;
  • U.S. dominance in international affairs threatened;
  • U.S. and China will clash in all sorts of ways;
  • Technology will be a significant issue for years to come.

Source: Bloomberg

What It Means for Investors

The growing tension between the world’s two largest economies is about more than just trade. China’s emergence as an economic powerhouse stands as a direct challenge to the dominance in global affairs that the U.S. has held at least since the end of the Cold War. Fundamental differences in approaches to government, business and geopolitics between the two countries will cause them to clash in “all sorts of ways,” said billionaire founder of Bridgewater Associates Ray Dalio, calling it a “long ideological war.”

While Trump and Chinese President Xi Jinping are expected to meet at the upcoming G-20 summit in June, even if the two leaders do agree to a trade deal, both countries will continue to clash for years to come over issues like technology, according to Mark Mobius, co-founder of Mobius Capital Partners. “We’re in a new game—Trump has really opened this can of worms,” Mobius, who sees little hope for a quick resolution, told Bloomberg

In the meantime, markets will continue to react to the various ways in which the trade war manifests itself, including the increased tariffs on $200 billion worth of Chinese goods that came into effect on June 1. According to projections by the Bank of America, the S&P 500 could tumble into bear market territory if Trump imposes tariffs on all Chinese imports

Looking Ahead

But some traders are looking at recent losses in stocks as opportunities to buy and others believe that a trade deal will be reached quickly. Andy Rothman, U.S. diplomat in Beijing turned investment strategist at Matthews Asia, believes a deal will be struck before the 2020 presidential election. “I continue to believe that Trump believes a China trade deal is better than no deal for his re-election prospects,” Rothman said.