One of the hottest topics in politics right now is the possibility of a trade war between the U.S. and China. As a nation, Americans know that this is not a positive thing, but most don't understand how it will personally affect them. One of the main things caught in the crossfires of a potential trade war is the status of many American's 401K which is leaving many retirees and likely retirees wondering what's this going to mean for their retirement.
The stock market has seen some better times, and though they've seen much worse in history, it's not looking promising for those looking forward to retirement. U.S. stocks have been down significantly (around $1.3 trillion in value) since President Trump announced a threat to impose a 10% tariff on an additional $300 billion in Chinese import (Gandel; CBS News). With this tariff imposed, it's stopping overseas sales which many companies rely on to make a substantial profit.
Now because those overseas purchases aren't being made because of the high tariff, this could potentially lead to a 13% drop in the S&P 500 stock index. That 13% doesn't sound like a high number, but it is when it equals out to be $3 TRILLION less than what the stocks were worth before President Trump's announcement back in August (and it's already gone down 4% since then). It hurts even more when you realize that the S&P 500 stock index is what makes up the majority of millions of American's 401K plans.
If the trade war with China escalates and the U.S. government continues the trend with other parts of the world, it could cause that 13% to rise to 50%. This is an extreme situation, as this would mean the trade war escalated through Europe, the rest of Asia, and the Americas. It would mean no overseas sales almost entirely and would send the U.S. into a very deep recession.
For many Americans, having stocks in the U.S. is an investment for our future. Stocks in a company you've worked for forever, to an investment you studied for weeks before buying, even stocks purchased on a whim can be vital parts to a retirement plan. If this trade war continues to grow and high tariffs are set in place, this will mean that future retirees will have to save money on their own to put aside for retirement and not rely on a 401k or anything from the U.S. stock market. It could also push back retirement dates, causing many Americans to work even longer than planned because there is not enough money to live off of without the aid of a 401k or a company based retirement plan.
The short of it is, a trade war with China is not going to be good for retirement plans or even the economy as a whole. The U.S. needs China, and the rest of the world, to continue to make trades and have overseas sales. Otherwise, we can wave goodbye to what we know as a retirement plan today.