Trade Wars Increase Financial Tension
President Trump was true to his word when he told the nation he intended to enter into a trade war with China. Whether or not he was telling the truth when he said it would be “easy to win,” has yet to be seen. No matter what the outcome might be, at this stage our current back-and-forth naming of new tariffs with the Asian economic giant certainly has sensible investors worried. Working for the federal government is no protection here. The Thrift Savings Plan (TSP) portion of the Federal Employees’ Retirement System (FERS) is that which the employee has the most control over and can often make the difference between a comfortable retirement and a stressful one.
The reason for this is that unlike the FERS Annuity and Social Security, the TSP allows employees to determine their own level of contribution and choose from a set of funds that can vary in performance. Market volatility caused by the looming trade war caused the majority of TSP funds to fall in March even though the first direct measures taken against China did not take place until March 22nd when the first $50 billion worth of goods to receive tariffs was announced. That day saw the Dow Jones Industrial Average drop 724 points, a figure that represents the fifth-largest single day drop in the Dow’s history.
While this was the first major move by the White House directly targeted at China, they had been hinting at it from they began imposing tariffs earlier this year. In January a 30% tax on imported solar panels was implemented. The idea was to make U.S. solar panel manufacturers more competitive, but many experts doubted its effectiveness while cautioning that the move could cause huge job losses for solar installers, salespeople, and others working in the industry outside of manufacturing. The U.S. did not single out China at the time, but the majority of solar cell imports do come from Chine. At the beginning of March, a 25% tariff on imported steel and 10% tariff on aluminum was announced. However, shortly after it was announced that many North American, European, and other countries would be excluded from the tariff. China did not make that list.
There is no doubt that investors have been feeling the pressure. In regards to the TSP, post separation withdrawals and retirement applications have both been increasing since the beginning of the year. The Office of Personnel Management has reported huge backlogs in their ability to process claims.
Many powerful, and sometimes surprising, players have entered the arena to try and dissuade Trump from pursuing trade wars. Apple CEO Tim Cook was in Washington, D.C. on Wednesday where he had a closed-door meeting with the President. Speculation suggested that Cook would try and steer Trump away from further escalation of the trade barriers being put in place in the way of tariffs between the U.S. and China. Chinese trade is vital to Apple both for selling their products and meeting the huge demands of their supply chain. Cook’s private meeting with the President followed his participation in talks between Trump and French President Emmanuel Macron.
Macron’s visit was closely followed by another visit from a European Union head of state, German Chancellor Angela Merkel on Thursday. She was there for much the same reason as Macron, in hopes of tempering down the first signs of a trade war between the U.S. and the E.U.
With so many different interests at play on a global level, it must be expected that investors are jittery and markets are seeing increased volatility. The suggestion most frequently proffered to federal employees worried about their TSP is to diversify in a number of the different funds.
