AAII Survey: Retail Investors See China Suffering More From Protracted Trade War With U.S.

In recent weeks, trade negotiations between the U.S. and China have stalled and the trade war between the world’s most powerful economies has reignited.

The Dow lost more than 400 points at its lows on Thursday, as both the U.S. and China appeared to be unflinching in their positions. No new talks are now scheduled, and China’s Ministry of Commerce on Thursday warned the U.S. to act with “sincerity” and change its “wrong actions.”

Analysts at Nomura Holdings warned in a note that “without a clear way forward” during the 2020 U.S. presidential elections, there is a risk that tariffs will remain in effect through the end of 2020.

AAII Weekly Survey Question

Perhaps the most immediate impact of a trade war between the U.S. and China is on the stock market. We have seen a spike in volatility and the Dow Jones industrial average is on its longest weekly losing streak since 2011 (five weeks and counting).

Longer term, however, the impact will be much wider than just stock markets and only time will tell who the winners and losers will be.

That didn’t stop us from asking this question last week:

If the trade dispute between the U.S. and China drags on, which country will suffer more?

Here are the results:

In all, 1,999 readers participated.

By more than a two-to-one margin, our readers feel that China will come out the bigger loser in a protracted trade war with the U.S. (49% versus 22%).

Twenty-seven percent of our readers see the U.S. and China suffering equally from a drawn-out trade war.

Another 2% did not have an opinion on the subject.

Weekly Special Question

Given the recent downturn in the U.S. stock market, as well as a marked increase in volatility, largely tied to the rising trade tensions between the U.S. and China, we were interested to know how heavily this was weighing on investors.

So last week’s special question asked:

As an investor, what is your greatest fear regarding the ongoing trade dispute between the U.S. and China? Have you made any portfolio moves tied to it?

In all, we received 299 responses.

The biggest fear among our readers is that the current trade dispute between the U.S. and China will lead to a global recession (11%).

Nearly 8% say their biggest worry is that the trade war between the U.S. and China will be prolonged in nature.

Five percent of respondents say their biggest worry regarding the current trade war between the U.S. and China is that it will turn into an armed conflict.

The vast majority of participants say they have not made any changes to their investment portfolios as a result of the uptick in trade tensions between China and the U.S.

Among those who have made changes to their investment portfolio, the most common action has been to avoid Chinese stocks or the stocks of Chinese companies.

Only a fraction of our readers have scaled back their equity exposure, and most of those have done so by cutting back on emerging market stocks.

Here is a sampling of the responses from our readers as to what their greatest fears are regarding the ongoing trade dispute between the U.S. and China and any portfolio moves they have made as a result:

• “‘Suffer’ is a bad verb to apply to this potential disaster. Yes, the Chinese may lose more business over the long term (although that remains to be seen), but their citizens are more used to hard times and government control. Americans have been spoiled actually for the past 30–40 years (except for the have-nots that no one seems to care about, and that will actually ‘suffer’ the most if this goes on). Plus, the government has thrown so much unneeded money at the economy recently that we will have no ‘kick-start’ left when a recession starts.”
• “As an investor, my greatest fear regarding the ongoing trade dispute between the U.S. and China is that it will lead to an international recession.”
• “I am buying more U.S. small-cap, mid-cap and health care stocks.”
• “China will ‘suffer more.’ but they are infinitely better equipped to handle such suffering than the U.S. is!”
• “This is just another media-created ‘crisis.’”
• “This too shall pass! I have made no changes.”
• “I fear that the so-called dispute escalates to a trade war, and further disintegrates up to the point of armed conflict. This needs to be resolved soon for the betterment of both countries and the world.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.