Very Clever, Those Chinese Folks

Before I get to the main point I want to make today, it's important to bring out that Larry Kudlow gave an interview last week, I think it was on CNBC. And for those of you who don’t know who he is, Larry Kudlow is a brilliant economist and he is Trump’s chief economic advisor. So Kudlow gave an interview and they pressed him on the wisdom of the tariffs. And in that interview, he reluctantly admitted that it’s like I have said all along, the Chinese aren’t paying any of the tariffs that Trump has implemented.  Instead it is actually being paid by the very consumers who buy those products from China, and you and I will see higher prices because of it.

But regardless of Kudlow’s interview, the important point that I want to make is that I said last week that the Chinese are much more clever than anyone is giving credit for.  And in that vein, you’ll notice that of all the tariffs they’ve now imposed on American goods, which will begin less than two weeks from now on June 1, they’ve not so oddly left out energy. And they buy lots of it from America in oil, LNG, and other forms.

What I think is going on here is not only that they are not showing all their tricks.  But also they know that the American economy is not as strong as neither our media outlets here nor our government officials want us to believe.  If they would implement a tariff on our energy, their consumers would buy less of it, causing extra supply to remain in American markets. If we have a recession in conjunction to that tariff on our energy, that will leave even more excess supply here in the States.  Ceteris paribus, the extra supply combined with lower demand in a recession will cause the price of energy to fall precipitously.

But they have not imposed a tariff which means that they can keep up the demand for our energy. So even if we go into a recession, that means that the demand for our energy will be elevated, causing the prices to stay elevated as well here at home. And that will cause far more damage to the American economy than the tariffs ever will.

Again I think the Chinese are much more clever than anyone thinks, and this move on their retaliatory tariffs are just the foreword to a very long, Tolsoyian-style novel.  They are just getting warmed up, and our politicians and media outlets are well behind the curve on this.

That’s it for now. Thanks for reading Volume 77 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.