Yesterday (and no doubt more in coming few weeks), there was massive angst and concern about President Trumps’s tariffs for $50-60 Billion in Chinese imports…fear that this would ignite a tariff war.
After pointing out the huge discrepancy in actual imports/experts between US and China that strongly favored China, I suggested China’s response would be restrained…in their best interest.
China said it doesn’t fear a trade war with the U.S. and announced plans for reciprocal tariffs on $3 billion of imports from the U.S. in the first response to President Donald Trump’s ordering of levies on Chinese metal exports.
SO US puts tariffs on $50-60 Billion and China puts tariffs on $3 Billion…this is what the market was so worried about???
This for a US economy that does around $18 Trillion annually…tariffs on $3 Billion???
Elon Musk supports these tariffs against China until we “have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors.” Or how about China stop ripping off our IP…how many 100’s of Billions in lost revenue to our US companies (and indirectly our tax base) is that worth?
SO yes…China’s response of $3 Billion imports exposed to tariffs…very muted response as expected.
BTW, IMO, this would be a tradable event were in not for the Fed…they are far more influential on our stock market than this tariff issue ever was going to be.
The largest import by dollar value into China is soy beans.
China has a serious inequality problem. Has had it since the beginning of China. Soy Beans feed the poor. Can’t tax the poor anymore. The whole pitchforks and torches thing.
China can tax the pork. Rich people eat meat. Much smaller item, but it targets a political swing state and rich people can take the hit.
There are other problems. We will see what happens. Even though I promised myself I wouldn’t, I raised cash this week, and am planning on raising a little more.
Many years ago, Hong Kong based investing adviser firm GaveKal said that the US does not use its bargaining strength to advantage. With this administration that is changing. People fear change but using your bargaining strength judiciously can only bring benefits. The steel and aluminum thing was designed to bring trading partners to the bargaining table. The idea is not to start a war but to fire a shot across the bows to prevent a war while gaining an advantage.
BTW, IMO, this would be a tradable event were in not for the Fed…they are far more influential on our stock market than this tariff issue ever was going to be.
Here is my opinion on the Fed…specifically on the future path of changes to the Fed Funds rate. The Fed will be data dependent. The Fed will act with the goal of keeping inflation between 2% and 3% and it will act with the goal of keeping unemployment low…around 5% or lower. But the decision will be data dependent as they have been. The real question is What will the data be? I have long argued that people underestimate the impact of technology on inflation. Technology is moving faster than people realize and technology is deflationary. How deflationary? We will see, but if it is significantly more deflationary than people expect or realize then the Fed, being data dependent, will raise rates less than people expect.
The Fed is not only controlling short term interest rates; it also controls the balance sheet. All that money that was pumped into the system by years of QE. What if the Fed had not done all that QE? Where would inflation be today? If inflation is as low as it is today with all that past QE then what would have happened if there had been no QE. I think would would have had severe deflation which would have driven the world economy into a very deep recession or depression. The Fed is now very slowly letting the air out of the ballon. Europe has not yet started this process. How fast can QE reversal continue? I think there will be some data dependency on future actions here as well.
Personally, I am not worried about inflation. I suppose that I am data dependent as well…with inflation and with how I make my buy, sell, hold decisions.
What I don’t get is why the Fed’s minimum unit of rate increase seems to be 25 basis points. Why not 10 bp? 25 seems to be enough to spook Wall Street and cause volatility.
That’s certainly been the argument for the US being the patsy in international trade agreements.
I disagree that we are the patsy. We are getting the goods we want at a cheaper cost than we can produce them ourselves. We can easily agree to produce these goods and services domestically, but it will cost a lot more. Or we can focus on what we do best and sell those goods and services to the rest of the world. I think the latter makes more sense, especially in conjunction with a smarter, well thought out trade policy.
And those workers who get left behind in this globalization scheme?
Time marches on. We can educate our citizens and reward people for entering the careers that make sense as we move forward, such as medicine and STEM careers, or we can subsidize industries that are dying or that can be done cheaper elsewhere. The former makes more sense to me.
I’m not sure what globalization scheme you are referring to. If you study history, ever since we crawled out of the jungles, mankind has been on a inexorable, if unsteady, march towards globalization. It makes sense. If we can survive our stupidity and the way we treat our only home, Mother Earth, we may make it in a century or two.
They get tossed into the “basket of deplorables.” But they can still vote.
Notwithstanding Ms. Clinton’s silly comment, we have the choice I mentioned above. Educate, train and move forward, or huddle, protect and stagnate.
AW, While the initial post managed to be mostly about economics, the most recent posts on the thread where definitely politically polarized, which Saul has declared off topic for the board.