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Economy , Stocks

Why the Escalating “Trade War” Was Predictable

See why the current trade conflict "fits the Elliott wave model perfectly"

by Bob Stokes
Updated: June 28, 2018

In 2002, Robert Prechter's Conquer the Crash said:

Protectionism is correctly recognized among economists of all stripes as destructive, yet there is always a call for it when people's mental state changes to a defensive psychology. The inevitable dampening effect on trade is inescapable. You will be reading about protectionism in the newspapers. [Emphasis added.]

Fast forward to the summer of 2017: That's when the U.S imposed duties on Chinese aluminum. However, the U.S. stock market, which is a direct reflection of social mood, was still rising. Therefore, last summer, there was little talk of a "trade war."

Yet, the September 2017 Elliott Wave Financial Forecast made this prediction:

China will respond to this and other measures by launching its own retaliations. "This will be no ordinary trade war," concludes The Standard. Of course it won't; the next negative mood trend will be no ordinary downtrend.

"Other measures" included President Trump's March 1 announcement of tariffs on imported aluminum and steel. That's when we started hearing rumblings about a trade war. These headlines appeared in early April:

  • China hits back at US with retaliatory tariffs (Financial Times, April 3)
  • China Tariffs Threaten U.S. Cars, Planes and Soy in Response to Trump (WSJ, April 4)

What had changed? Well, the U.S. stock market had topped in late January and went on to experience a rapid 10% selloff in February. Stock prices in China were also sliding.

This downward slide in stock prices in the U.S. and China indicated that "people's mental state" had indeed turned "defensive."

The April Elliott Wave Financial Forecast remarked:

The trade conflict is now being discussed and even feared because negative mood has become dominant. It fits the Elliott wave model perfectly. [Emphasis added.]

Now, here in June, the "defensive psychology" persists. Here are headlines:

  • US-China trade tensions escalate as Trump approves $50bn of tariffs (The Guardian, June 15)
  • The risk of a global trade war is rising (CNN Money, June 26)

Looking at history, we know that tough trade talk transitioned into the passage of the Smoot-Hawley Tariff Act in June 1930.

Is history about to repeat?

Well, it's best to keep a close watch on the Elliott wave model, which is sending a very important message.

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