If you are reading this and haven’t read Part 1, you will be able to understand this newsletter but miss many pieces of the untold story of Tariffs. Missing that read would be like building your house without a foundation, not something you would do in America. For this part, I try to answer the question everyone is asking: are tariffs working?
Are Tariffs Working?
Many have wondered if Tariffs are working. What would be those signs showing it is working? What are the negative things being caused by Tariffs? Is this making America Great? In this newsletter you will find those answers and more. Most would agree that it is in the very early stages of success or even failure. There are many points of disagreeing views, yet there is one thing that most agree upon, and that is that it creates a tremendous amount of uncertainty!
Here is an in depth look using President Trump’s tweets on Tariffs as well as my “fact check” response.
Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come,Tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth…..
— Donald J. Trump (@realDonaldTrump) August 5, 2018
“Tariffs are working big time…”
Looking at the numbers the Trade Deficit has risen approximately $100 Billion since March when Tariffs Wars started. A partial reason is the dollar has strengthened against other currencies the U.S. is in trade dispute against. At the time of the President’s tweet on August 5th, it looked like then and still is now, that the only country we are close to a trade deal with is Mexico. Just this week there was a verbal agreement announced by the president in Mexico and the U.S. This deal is a very narrow deal compared to the larger picture of the disagreements between the U.S. and Mexico. There is some noise from Europe but still very far away from any agreement. As far as Canada, Chrystia Freeland, the Foreign Minister of Canada and the U.S. Trade Representative, Robert Lighthizer, have been meeting this week. The U.S. side apparently made it clear that the deadline for an agreement in principal is this Friday, with no wiggle room. According to Brett House, deputy chief economist at Bank of Nova Scotia said this recently “We’re really just back to where we always were.” In the case with China, we are the furthest away from an agreement and China is digging in their heels and recently left the bargaining table 2-days into a 5-day summit.
“Every country on earth wants to take wealth out of the U.S….”
In reality every country looks out for their own best interest. This is why there have been tariffs in place for decades long before this current trade war. This recent trade war is because countries are looking at what is best for them. I support our president in wanting to make America great. I assume most citizens of other countries support their president or prime minister in making it better economically for their country. The key here is companies trade, not countries. In addition, an underlying benefit to the U.S. is that other countries send us goods and they buy our Dollars.
“I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the U.S….”
A Tariff is just a border tax that companies pay to be able to have those products cross the border. This is collected by the government as revenue. It is U.S. consumers that pays higher prices because of Tariffs. The President or Congress just can’t single out a U.S. company and require them to pay more taxes because they are manufacturing a product in another country. That would be unconstitutional and breaks all of the ideology that our president believes in, which is free trade, free markets, and capitalism. Those ideas are what has made America great!
Harley Davidson and Europe
Harley Davidson, an American icon, is diversifying its manufacturing to Europe to survive. The American market has been shrinking for nearly a decade, while the European market has been growing year after year. The Asian markets are up and coming too for Harley Davidson. They have two choices, evolve with the times or die like many other U.S. companies have when they chose not to change as the economic environment changed.
Apple and China
Apple, an American company, makes the iPhone in China due to labor and manufacturing costs. Tim Cook, Apple CEO, has recently met with President Trump at the White House. I believe he sees the potential problematic position Apple might be forced into. Chinese citizens, whom are employed at Apple manufacturing plants, bring economic stability in that region. Also, Chinese citizens are the number one buyers of the iPhone and iPad. Can you imagine the upheaval if China retaliates against the U.S. by slapping tariffs on iPhones and iPads? How about if President Trump does the same to force an American manufacturing company to up root and bring its facilitates to America? Can you imagine how much more most Apple products would skyrocket in price? Harley Davidson is in the process of doing what Apple has already done, which is move manufacturing to survive. Is the President going to go after all American companies that have manufacturing facilities abroad? If so the turmoil we have seen is nothing in contrast to the turmoil that it would create. I understand what our president is attempting to do to stop the out flow of jobs.
The huge realistic dilemma is the “Genie is out of the bottle” and has been for decades.
People flock to our great country for many reasons. It is the land of opportunity. Wages and the quality of life is so much higher in the U.S. than the rest of the world. That benefit also works against us when it comes to manufacturing. To be competitive globally, several things would need to happen. Three things would need to be significantly lower in the U.S.:
- Wages would need to be slashed to the levels in countries like China, Indonesia, Vietnam, and Thailand.
- Corporate Taxes would need to be adjusted much lower than the recent tax cut. Tax rates would need to be set at the levels of countries I just mentioned reflecting wages.
- The U.S. Dollar would need to be at the level of a second world and maybe even a third world currency level, which would be substantially lower than it is currently.
Most Americans would say yes to # 2, yet if implemented our National Debt would soar even more. If #3 was manipulated to get to those levels (or there was a massive sell off of the dollar to cause this) this would be positive in many areas such as trade, manufacturing, and stocks related to these. On the other hand, the inflow of money from foreigners to buy U.S. stocks and our U.S. debt would come to a screeching halt. Americans that travel abroad would see a significant rise in travel cost due to our currency no longer being strong. Those are the ‘ifs”, now let’s come back to reality since we will probably never see all three and maybe at best only one.
“In either event, it means jobs and great wealth…..”
Most economists say Tariffs reduce jobs and wealth. According to a recent CNBC survey, almost all the comments from leading economists agreed it was a five to one.
For every one job saved, by implementing Tariffs, five jobs are lost.
Coming out now in the news are multiple stories where Americans are being quoted and interviewed. They supported President Trump in voting for him during elections and they understand what the President currently attempting to do. Yet they are writing letters begging our President to lift Tariffs. Americans are getting their hours cut back, some losing their jobs, while other are hearing from their employer that they might have to shut down the factory that their livelihood is coming from, all because of Tariffs and now not being able to compete.
..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!
— Donald J. Trump (@realDonaldTrump) August 5, 2018
“Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt…”
Look at the revenue derived from Tariffs. It is in the Billions. While budget deficits have now reached over a Trillion, as well as the amount of Treasuries being created this year also reaching over a Trillion for the first time. Couple that to the National Debt that is at $21.4 Trillion. An aggressive estimate for Tariff revenue is $21.3 Billion, while the U.S has agreed to pay out $12 Billon initially to struggling farmers subsidizing them which is directly due to Tariffs. Let’s take a closer look at this: The National Debt has grown $1.6 Trillion so far under President Trump’s leadership, and the Trade Deficit has also grown and is approaching $1 Trillion. Although it politically sounds admirable, deficits and debts far out weight tariff revenue and it is numerically impossible to pay down the National Debt with this ideology and strategy.
“At minimum, we will make much better Trade Deals for our country!”
That is possible yet still historically not factual since so far there has never been a time in history where that statement is true. We are in the very early in stages of a “Trade War”. Only time will tell that if the implementation of Tariffs worked in the favor of the U.S.
CNBC asked for clarification from the Administration on how the Tariffs will make much better “Trade Deals” for our country. The Administration responded and said, “Trading partners such as China have used state subsidies and other measures to give their goods an unfair edge over American made products. Tariffs remove those advantages giving the U.S. and foreign companies incentive to make and sell goods in the United States. Moreover, the Tariffs are intended to get others to change their unfair behavior. This will lead to better deals for American businesses and workers. Additionally, taxes on unfairly subsidized imports also are a source of revenue.”
This last week there have been negotiations on trade going on between the U.S. and several entities. China and the U.S. had a five-day summit of negotiations which broke down and China left the table on the second day. Mexico and the U.S have a small verbal agreement that I will explain in a moment. Canada has until Friday to come up with some sort of an agreement with the U.S. The European Union and the U.S. have not met for some time in their differences.
The good news is we are making small baby steps toward trade agreements but we still have a long way to walk before these are set into motion. There is a three month seasoning period that needs a congressional vote. The clock will start ticking for the 3 months when the verbal agreement is put together in writing and signed off by both Mexico and the U.S. That will put us somewhere into early December. This agreement could fall apart in many ways unfortunately.
- The House could possibly be controlled because of elections and might not agree to anything the President wants.
- If we don’t have Canada in on an agreement, Congress might not approve of this because there would no longer be a NAFTA.
- Mexico might not follow through since the news media is asking the President if Mexico is still going to pay for the wall still even though we have a trade agreement with them. The President said “Yeah. The wall will be paid for very easily, by Mexico. It will ultimately be paid for by Mexico,”
Mexican Foreign Minister Luis Videgaray Caso responded in English and Spanish tweeting “We just reached a trade understanding with the US, and the outlook for the relationship between our two countries is very positive,” “We will NEVER pay for a wall, however. That has been absolutely clear from the very beginning.” If the rhetoric between the U.S. and Mexico escalates over who is going to pay for the wall, Mexico might just walk away and say there is no deal anymore.
There is still a certain amount of uncertainty. What we have learned is markets do not like uncertainty. Although this is not showing up yet in the forefront of investor’s minds, it is still in the files of the cerebrum that could be the main point of attention.
Gold has had a major change recently moving out of a Bearish short term pattern into a Bullish pattern. I called the bottom for the gold market the day it was the lowest this year on national radio. I gave the details of a change in course for the last 9 years that happened just recently. Because of the topic and length of this newsletter I will write about this and also another historic announcement from the Treasury recently in September’s newsletter. Do not wait for that and get the inside scoop on gold bottoming out and now moving up.
Call my company to learn the details from one of my representatives.
Can you imagine going back in time and buying Gold at the bottom of the market at $252? Who wouldn’t? Every investor’s dream is to buy within a few dollars of the bottom of the market. Well my friends we are here and we have bounced off the bottom. Get ready for the rally. More importantly, call us to find out the facts, and why gold’s current price is really the bottom of the market, just like buying gold at $252. Why wouldn’t you?