TRADE WAR GAMES: The array of policies the Trump administration wants all point to a trade war with China. And at some point, U.S. stock investors will notice.
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IN THE weeks since Donald Trump was elected president, the behavior of U.S. financial markets—and of the stock market in particular—has represented the triumph of hope over common sense. The steady “melt-up” of the main stock indexes to all-time highs is rooted not just in a slowly improving domestic economy but in optimism: the belief that Trump will, as promised during the campaign, cut corporate and individual tax rates, repatriate billions of dollars that companies now stash abroad rather than invest at home, invest a trillion dollars in infrastructure and deregulate large swaths of the economy—all policies that most of corporate America loves.
But in the lead-up to his inauguration, financial markets also re ected something else: apprehension. Thanks to the expectations of what Trumponomics will bring, U.S. interest rates have quickly ratcheted higher—the rate on a 10-year U.S. Treasury note is now 2.4 percent, compared with 1.8 percent a day before the election—and so has the value of the U.S. dollar. This has put particular stress on emerging market economies—China in particular—to defend weakening currencies.