The US/China trade war has continued to escalate as President Trump tries to lock in a victory ahead of next year's presidential elections.
Huawei, the Chinese smartphone maker, is the most recent target of his attacks. The company uses Google's Android operating system for its phones and due to US sanctions, it is likely that Google will be prevented from doing business with the company.
And though Huawei is an obvious victim, we must not forget that this isn't great for Google either. Huawei is the world's number two smartphone maker and growing faster than its rivals. One can argue about the ultimate efficacy of the US picking a fight with China at this stage, but there is no question the US has the upper hand for now.
Despite what you may have heard about the rise of China, the US remains significantly larger for now. The US GDP is currently at about $20 trillion, while China is less than $15 trillion. In addition, the US has far fewer people, meaning that the average American is much wealthier than the average Chinese. So, it would seem to be a no brainer the US will win.
The counter argument is this imbalance will not remain forever. Chinese growth rates are roughly double that of the US. So, while it is true, we'll not see the average Chinese overtaking the average American in our lifetimes, within a decade or two China will almost certainly be the largest economy on the planet. At which time, the tactics the US is employing will likely be turned back against it. Its like bullying your little brother, eventually he is going to grow up and turn the tables.
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When elephants fight the grass is the one that suffers
There is a saying that when elephants fight the grass is the one that suffers. In this scenario, the US and China are the elephants and smaller countries like South Africa are the grass. We have already seen both our stock market and currency buffeted by the escalating trade tensions.
Going forward, we are likely to see more of the same. Though it is in the best interests of both countries to resolve this dispute, as crazy as it sounds, it’s probably better politically for Trump to go into the 2020 election with an ongoing trade war. It plays into his America first approach and shows him to be a tough guy willing to take on China.
In that scenario, South African investors would be best served by picking a winner (I would personally go for the US) or looking at a safe-haven destination (Europe or Japan). Sticking in the “grass” of South Africa is a much riskier option. Estimates say that an escalating trade war could cut over 1% from global GDP Growth. For a country like South Africa that is barely doing 1% year anyway, it could be the factor that pushes us into recession.
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Where to invest your money offshore?
Fortunately, these days there are many options for South African investors to now place funds directly offshore. You can take as much as R1 million out of the country at the drop of a hat by using your single discretionary allowance. A simple tax clearance gets you an extra R10 million allowance to transfer.
And, while we arrange international transfers for our clients on a daily basis, the number one question clients ask me is what to actually do with the funds once they’re overseas. I’ve seen too many “unadvised” clients sitting on USD, GBP or EUR balance with no hope of protecting their money against the ravages of inflation.
If you’ve followed my column for a while, you’ll know I’ve highlighted some excellent offshore structures in the past. And, while the details of each individual product are fun to chat about, today I want to use my time to issue a warning instead.
There are many excellent investment products out there. But for every good product there are multiple poor products. The same goes for financial advisors. If you are looking to move funds offshore, it’s worth chatting to a professional about how to invest.
Make sure they’re FSCA registered advisors at the very least. Any advisor you speak to should first present their credentials. As, always if you have questions for me, or would like you to assist you personally, feel free to contact me on email@example.com
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