Politico-Legal Environment Analysis: Trade War Effects on Economy

This report examines the politico-legal environment, specifically focusing on the impact of the US-China trade war on the American economy. The analysis, based on a CNN article, highlights three key concerns for business executives: lower stock prices, decreased consumer confidence, and increased tariffs on exports. The report discusses how these issues are interconnected, explaining how President Trump's trade policies have created uncertainty, leading to reduced consumer spending and lower stock valuations. Furthermore, it details the implications of retaliatory tariffs imposed by China, which threaten to make American exports less competitive in the global market. The report references sources to support its claims, providing a comprehensive overview of the economic consequences of trade tensions and their effects on the business environment.

POLITICO-LEGAL ENVIRONMENT
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Politico-Legal Environment
Issues of concern
According to the article on CNN, the Wall Street is experiencing massive variations in every
trade headline. Mainly, this can be attributed to the fact that President Donald Trump whipped a
crackdown on China’s trade tactics. In turn, this is expected to affect the global market in various
ways. In this case, there are three important things that business executives should be concerned
about in the first quarter of 20181. They include;
1. Lower stock prices for company shares
2. Lower consumer within the economy
3. Greater tariffs on exports
Discussion of the issues
Lower Consumer and Business confidence
Primarily, consumer confidence is an economic indicator that examines the degree of
pessimism or optimism that individuals feel towards the general conditions in the economy as
well as their own financial positions. By and large, the degree of consumer confidence plays a
critical role in the economy. As such, when the confidence of consumers is high, they tend to
purchase more goods and services within the country. On the other hand, when the confidence
level is low, they tend to reduce their level of spending and purchases of goods and services
within the economy. In this case, the uncertainty created by President Trump’s bombshell to the
Chinese economy has brought about significant uncertainties to the local economy. As a result,
1 Matt Egan, “Wall Street's head-spinning reaction to trade headlines,” CNN Money, 2018,
http://money.cnn.com/2018/03/26/investing/dow-jones-stocks-trade-war-trump/index.html

this will substantially influence the consumers’ confidence. Specifically, it will lower the
confidence level among consumers in the country. A lower consumer confidence implies lower
demand for goods and services produced by companies within the country. Consequently, this
significantly affects the revenues and profits of the organization.
Lower stock prices
It is imperative to point out that stock prices are susceptible to various factors within the
economy. These factors comprise of interest rates, inflation, deflation, changes in economic
policy, economic and political shocks, among others. In this case, President Trump’s decision to
impart tariffs and barriers on Chinese products significantly influences the conditions in the
country. Specifically, these changes comprise of economic and political shocks as well as
economic policy within the country’s economy2. Mainly, one can attribute this to the fact that
market conditions generally influence companies. At the moment, the economic outlook in the
US predicts that the economy will contract for a while. The negative economic shock arising
from the decision will significantly affect the stock prices of companies in the country. In turn,
this will force the stock prices downwards.
Greater tariffs and barriers on exports
As noted in the article, President Trump has initiated a policy that aims at increasing the
tariff barriers on products from China. In turn, this has created trade tensions between the two
super economies. Consequently, this has caused China to retaliate and inflict more tariffs on
goods and services from the United States (Egan, 2018). Specifically, China has threatened to
impose tariffs on American nuts, fruits, aluminum, steel and other exports. In turn, this is
2 Paul Meadow, “Finance Factors That Influence Stock Prices,” Wall Street.com, 2017,
https://wall-street.com/finance-factors-influence-stock-prices/

expected to significantly raise the prices of these goods in the market, making them less
competitive in the international market. Thus, the changes will significantly affect the exports
and their prices.
References

Egan, Matt. 2018. "Wall Street's Head-Spinning Reaction To Trade Headlines". CNN.
http://money.cnn.com/2018/03/26/investing/dow-jones-stocks-trade-war-trump/index.html.
Meadow, Paul. 2017. “Finance Factors That Influence Stock Prices,” Wall Street.com.
https://wall-street.com/finance-factors-influence-stock-prices/