Yesterday, Trump laid out an agenda for the second term in a prepared speech. 

This was an important speech, as he laid out the path forward with China.  And it’s an aggressive one. 

Remember, we’ve been talking about the likelihood of seeing the U.S. and democratic global allies taking a stand against the Chinese Communist Party, putting China in the “penalty box” – a global retaliation against China’s multi-decade predatory economics. 

That seems to be the gameplan. 

Here’s what the timeline looks like on this escalation …

After plenty of jawboning and tweeting, for years, back on May 29th, Trump formalized his threats against China in a prepared speech, following China’s takeover of Hong Kong.  He made his case to the American people. 

From that point, Pompeo has been out building a coalition (of global allies) against China.  Within that effort, he made a speech at the Nixon Library calling on “every leader of every nation,” for the “future of the free world,” to set the standard for dealing with the Chinese Communist Party.  He called for an alliance of like-minded democracies, to “act now” against the CCP, or let them “erode our freedoms and subvert the rules based order that our societies have worked so hard to build.”

With that backdrop, yesterday Trump got more specific about the scale.  He said would “make America into the manufacturing super power of the world.”  That’s a big statement.  And with that, he said he would end our reliance on China.  No federal contracts for companies that outsource to China. And a “big tax” for those that do.  This is not just moving the supply chain out of China, but it’s bringing the supply chain home.  

Lastly, he said “we will would hold China accountable for allowing the virus to spread around the world.”  This probably means Trump and company have some leverage to get allies on their side for, at best, sanctions …or at worst, military action. 

For market, this leaves a 55 day vacuum to fill with uncertainty and speculation.  Markets clearly don’t like it.  Let’s take a look at how stocks behaved throughout the U.S./China trade war (from the announcement of the first tariffs, to the signing of the “phase one” deal).