The past couple of weeks have been decidedly volatile on Wall Street as the U.S.-China trade war has escalated, and Nobel Laureate economist Robert Shiller says everyone needs to calm down.
Shiller, who also is an economics professor at Yale, says it’s not market fundamentals that are out of whack, but rather everyone overreacting to every story, tweet and utterance about the trade war from both China and the White House.
“Well, I think of it as theater. We have two strong politicians, Xi and Trump, and Trump has just (landed) a punch,” Shiller said on CNBC’s “Trading Nation ” on Wednesday. “He put these tariffs on to China … and he tweeted it on May 5. It wasn’t insulting — he hasn’t created any names for Xi yet — but it was a little bit on the edgy side and it kind of humiliates Xi. So this is a human interest story which bleeds over into the markets.”
Since Trump’s tweets on May 5 where he threatened new tariffs, markets have been on a virtual roller-coaster ride up and down before finally settling a bit — but not until the Trump administration announced Wednesday that it would hold off on raising tariffs on auto imports from the EU.
It seems the administration would rather focus all of its efforts on China for the time being.
“We’ve seen volatility pick up right in response to this crisis. But we don’t know where it’s going and our two leaders, Xi and Trump, have an incentive … not to push this too hard,” Shiller said. “We might see accord reappearing. Trump sometimes seems to be trying to be polite to Xi, and maybe there will be some new accord.
“But volatility, once stirred, does have some persistence and it could continue for months after this would be my guess. Again, it all depends on world events and I can’t say anything definitely.”
Editor’s note: Do you agree with Shiller’s take that investors are hanging too much on every piece of news on the trade war, and should calm down a bit? Discuss in the comments below.