The Macro Market Wrap Up

I wasn’t planning to post anything today but I did find some news regarding trade talks with China. As a reminder, I predicted quite accurately, I am saddened to say, that the talks would stall and the Trump White House would impose more and higher tariffs.  Look, I am not a prophet and don’t claim to be any kind of soothsayer or necromancer. You really only need to take a cursory look at the history of trade wars and have a very limited understanding of economics to be able to figure out the most likely outcome here.

I’ve been very public with my opinion on tariffs, that they should not be imposed, and other means to the same end should be utilized.  Specifically because Mr. Trump misunderstands tariffs.  He thinks he is punishing China and any other country whose products are tariffed will benefit American companies and American consumers. He's dead wrong.

The real loser is the American consumer who buys those products, the federal government who loses more tax revenue than it gains from the tariffs, the corporations who supposedly benefit from the tariffs here in America, and many others.  That’s because of two main reasons, namely that the tariff, for the Chinese producer, is just a cost of doing business, and like all other costs, the cost of the tariff is built into the final price that the end consumer pays.  And secondly, capital is diverted to areas of the economy that are otherwise providing inefficient use of that capital, but the tariff masks the inefficiency behind a veil of falsely hiked prices on foreign goods.

It’s similar to two runners, one who is running into the wind, and the other, because of a large wind shield, is not affected by the wind.  Additionally, the guy with the wind shield in front of him also has a 25 mph wind behind him. So he has a clear advantage, that is, until the wind shield and the fan are removed and the playing field is leveled. 

Once the tariff is suddenly lifted, everything reverts back to where it was to begin with, and the American producers will retain their disadvantages. Investors will lose out because the business they invested in will lose its false efficiency, and thus their capital is destroyed.

On Friday last week the Trump administration announced, as did president Trump on Twitter, that tariffs currently standing at 10% will jump to 25%, and new products will be added to the tariff list.  In all, it will account for over $81B of tariffs on $325B of goods coming from China, and one of the industries singled out is fibers and fabrics. Tariffs on some of those companies and products will be as low as 32% but some will be as high as 460%, as seen here.  That means the cost of any garment you buy in Target, Walmart, Macy*s, and even luxury retailers like Bergdorf Goodman, are going to rise in price. And unfortunately, the biggest loser of this indirect taxation are the poor and middle class, who can least afford the cost of living to rise.

That’s it for now, and thanks for reading Volume 73 of The Macro Market Wrap Up With The Mad Genius.  Make sure to leave any questions or comments below.  Until next time remember that there is always a bull market somewhere in the world, and on the opposite side of every crisis there always lies opportunity.