I hate tariffs! I hate tariffs! I hate tariffs!
PHEW!
Now that I got that out of the way, I can get down to business. I really hate the idea of tariffs. The free market should be the ultimate arbiter, absolutely not the global governments trying to protect certain industries. And as I have said over and over and over, no one, not a one, wins a trade war. There are only losers.
You can only put so much lipstick on that pig. Tariffs are either borne by the consumer or the producer, but tariffs are just a fancy word for taxes. The consumer can pay more for a good which is inflationary or the producer can absorb that cost which impacts their bottom line. And anyone who thinks the U.S. is guilt free is just dead wrong. How do you think our light truck industry became so dominant for Ford and GM?
What also bothers me is the President’s tactics of the on again, off again tariffs which serves no one well. Literally, on any given second, a random tweet can hit Twitter and the global markets see instant outsized moves. And let’s not forget that the Chinese are masters at manipulating their currency. In this regard, they have weakened the Yuan to help offset some of the tariffs.
If I were China, I would continue to massage the Yuan and always be open to calls, meetings and negotiations, but there is no way I would make a deal with U.S. before the 2020 election. What’s the motivation? The Chinese economy is already in the toilet. President Xi is basically president for life or until he decides he’s done. The Chinese people won’t demand anything on this front. Xi is smartly playing the waiting game and hoping he gets to negotiate with another resident of the White House. And if Trump wins, Xi already knows who he is dealing with.
Many people have asked what the U.S. should do instead of imposing tariffs. How should we combat intellectual property theft? While an excellent question, there really is no good answer. I do not think China will ever agree to help the U.S. combat IP theft. We could fight it out at the World Trade Organization, but that’s a lot of time without much reward.
The long-term “hope” is that the free market would eventually move manufacturing from China to other nations and that would help level the playing field, but not solve all of the problems. Additionally, unless the Chinese allow their currency to free float, it will never, ever be considered a reserve currency that the world must use. Eventually, the Chinese know that having a reserve currency trumps everything else.
President Trump has come out with some really good economic policies, like cutting more than 400 regulations and overhauling the tax code like Presidents Reagan and Kennedy before him. I supported these because they had a direct positive impact on the economy for everyone. Trump’s policies toward China are misguided from my seat and will only end up damaging our economy. Some believe that Trump knows this, but is also counting on the Fed to continue to cut rates. That’s a dangerous game, especially once the economy rolls over.
