Wall Street has been fooled from the beginning of the Trump tariff War. All we heard from Wall Street was an implicit trust in Donald Trump, that Trump was a negotiator and negotiations would bring a deal.
No one believed that the Tariff Man would betray stocks. Art of the Deal man promised more. Or did he?
But, in reality, Donald Trump is tariff man. He believes the deal of 25 percent tariffs on 400 billion dollars of product (the eventual total that will be put under tariffs) will bring in 100 billion dollars in taxes. Of course, that tax is to be paid for by US citizens. And Trump is trying to convince stock investors that this is a good deal. This will take at least a year or two, to collect the 100 billion, since not all of China's products are subject to tariffs now.
Trump wants to buy infrastructure and pay farmers with that 100 billion. That is a good deal in his mind. He tweeted it so it must be true! He wants to buy the products and then send them to poor nations. I can't quite believe that. He made promises before to help Puerto Rico with debt. But he changed his mind.
Donald Trump adopted his views on tariffs in the 1980s. He campaigned on the platform of tariffs. His base understood but mainstream media was asleep during the campaign. This is the real Donald Trump:
Trump adopted his current views on trade issues in the 1980s, saying Japan and other nations were taking advantage of the United States.[15] During the 2016 presidential campaign, Trump repeatedly favored policy proposals that renegotiate trade agreements for the United States. During a meeting with the New York Times Editorial Board in January 2016, Trump said that he would tax Chinese imports into the United States by 45%.[16] Trump frequently criticized the North American Free Trade Agreement calling it "the worst trade deal the U.S. has ever signed".[17] He also called Trans-Pacific Partnership "the death blow for American manufacturing" and that it would "put the interests of foreign countries above our own".[18]
On November 21, 2016, in a video message, Trump introduced an economic strategy of "putting America first", stating that he would negotiate "fair, bilateral trade deals that bring jobs and industry back onto American shores". On January 23, 2017, three days after becoming president, Trump withdrew the United States from the politically divisive Trans-Pacific Partnership believing that the agreement would "undermine" the U.S. economy and sovereignty.[19][20][21][22]
But we know stocks are often priced on growth potential. And investment is made based upon potential. The potential of retaining 1.4 billion customers is quite different than pricing a company based on it being hated by 1.4 billion customers.
It isn't measured by current trade numbers and deficits.
(Click on image to enlarge)
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| Monthly exports to China |
What we can see by the chart is that China has made a good faith effort to increase imports from the USA. But that has started to slow as tariff man started to attack China. It appears that, opposite what Peter Navarro has said, China has begun to allow companies to compete in China. But that door is closing!
We have to understand that per capita trade exchange with China is in the favor of the USA. The latest figures I could find show that the US is 46th in actual per capita exports and China is only 74th! China exports less than $2000 per person and the US exports nearly $5000 per person. How can China be expected to trade evenly across the board with the USA when we have less than a quarter of the population of China and China has a much larger manufacturing base? China should send more goods to the USA, in principle, because China is a much larger nation.
As far as intellectual property is concerned, did Trump want to weaken China as a sovereign nation by forcing his will onto its legal system? Would that interference in the legal system result in China being unable to be competitive in areas that would bring a large nation into greater prosperity? That would likely be immoral.
It is not illegal for a nation to demand a sharing of technology in order to do business with that nation. Codifying it into illegal status would be a mistake. China had to roll back that earlier agreement. Was it trying to work a compromise? Trump surely was not satisfied with compromise because he has ambitions as tariff man. As Frederick Abbott says:
The legal situation under General Agreement on Tariffs and Trade (GATT) and WTO law with respect to technology transfers is not well-defined.[2] Transfer of technology demands are principally made in two contexts. First, technology transfer may be demanded as a condition of purchase of products, imported or otherwise. Second, technology transfer may be demanded as a condition of approval of foreign direct investment.
Donald Trump believes he is the most intelligent man. He despises Mexico. He despises China. He despises Germany. The UK despises him. He was laughed at the United Nations. I wrote this in response to his UN appearance:
What we must understand about Donald Trump in order to protect investors is that Donald Trump is a revenge first, deal second, demagogue. So, he never forgot the NFL not giving him a team. He sought revenge through the World Football League. Then he sought revenge through the player protests.
It is said that he sought revenge against Seth Meyers' and Barack Obama's roasting of him to such an extreme that it motivated him to run for president.
So, when the world laughed at Donald Trump at the United Nations, it set the world up for revenge. It made the world a more dangerous place. I do not know what form Trump's revenge will take. It will either come through war or economic war, or maybe both. With Trump hating all these other nations and loving tariffs, we have a serious potential problem for the American economy and its stock market.
He pushed people around when meeting with the G-20. He has surrounded himself with a bunch of angry men, who want China to back off that which is legal, technology transfers as a means of doing business.
Navarro thinks these things as the Wikipedia article shows:
When told that the Tax Policy Center assessment of Trump's economic plan would reduce federal revenues by $6 trillion and reduce economic growth in the long term, Navarro said that the analysis demonstrated "a high degree of analytical and political malfeasance".[37] When the Peterson Institute for International Affairs estimated that Trump's economic plan would cost millions of Americans their jobs, Navarro said that writers at the Peterson Institute "weave a false narrative and they come up with some phony numbers."[38] According to MIT economist Simon Johnson, the economic plan essay authored by Navarro and Wilbur Ross for Donald Trump during the campaign had projections "based on assumptions so unrealistic that they seem to have come from a different planet. If the United States really did adopt Trump's plan, the result would be an immediate and unmitigated disaster."[39] When 370 economists, including nineteen Nobel laureates, signed a letter warning against Donald Trump's stated economic policies in November 2016, Navarro said that the letter was "an embarrassment to the corporate offshoring wing of the economist profession who continues to insist bad trade deals are good for America."[40]
Trump has surrounded himself with radical American thinkers, who are taking a mighty risk. I cannot say loudly enough that 1.4 billion Chinese customers are the future. Much of the stock market lives and dies with their prosperity. Wall Street doesn't get it. Trump wants the tariffs. He wants to raise taxes on Americans. He likes doing that. He wants us to experience this hardship.
The problem with Potus 45 is that he projects himself as the ugly American. He says he is your all time favorite president. And this after he raised tariffs to 25 percent in 200 billion dollars of Chinese goods!
As long as investors are mesmerized by his promises and cling to his every word, their investments are in danger. We can extrapolate that Europe, Canada, Japan and Mexico are not safe from this unstable fanatic, going forward.
Companies like Micron and Apple will suffer. They will likely come out all right in the end, but they could suffer short and medium-term pain from Chinese policy going forward.
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