As investors await the latest FOMC meeting minutes, the ongoing battle over global trade remains at the forefront of attention. China, the EU, the U.S. and other regions thus far appear determined to dig in and try to hold their ground as tensions over trade escalate further. The current tit-for-tat exchanges of tariffs could be only the beginning, with even larger measures potentially being implemented.
Although the opinions are quite varied as to how a global trade war could play out, such a scenario could have some significant effects on the global economy. The Great Depression of the 1930s is a prime example of the possible effects of a trade war. The Smoot-Hawley Tariff Act imposed taxes on many imports, and some have argued that it turned a recession into a depression. Could the same type of thing play out today? The answer is yes-and no.
Consider for a moment the effects of tariffs: they can lead to higher prices for everyday goods. Electronics, food, cars, manufactured products could all become significantly more expensive. As products become more expensive, the public is either forced to pay higher prices, or forced to not make the purchase at all. If the average price of a car, for example, were to increase by several thousand dollars, the increased price tag could force would-be buyers out of the market. Needless to say, this could then hurt auto sales. Not only could it cause a sharp decline in sales, but that decline could then spill over into other industries that produce parts or provide transportation.
If buyers are forced to pay more, it then lowers disposable income. Such a decline in disposable income then has a wide-ranging effect on many areas of industry. Certain sectors that are dependent on disposable income could see massive declines in activity. This, in turn, affects more people even more as jobs may need to be cut and businesses start to fail.
The whole thing can turn into a vicious circle, and has the potential to fuel another depression. The Fed, however, could step in and look to calm the storm through its various policy tools. This could mean rates going back to zero, or even another round or rounds of QE.
Either way, such a scenario could be very bearish for stocks and highly bullish for perceived safe haven assets like gold.
The next recession could be seen in the months ahead, and it is not yet clear if it will turn into a depression. What is clear, however, is that now is the time to diversify your assets, and to build a meaningful allocation in hard assets like physical gold that may retain or even increase in value during tough economic times.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can show you how this key asset class can play a vital role in your portfolio. Not only that, but you can also learn how easy it is to build a significant allocation using your IRA account.
Don’t wait until it’s too late. The next major recession could take hold in the months and years ahead, taking the stock market down with it. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, fomc, global trade, gold, smoot hawley tariff, stock market decline, trade war