In keeping with the theme of a planet in chaos, watching this past week with two major global summits was something to behold. Yes, the planet is in disarray, but for America, chaos never looked so good. Thriving markets … full employment … growing economy … and now, we could see peace on the Korean peninsula.
Not so fast! We have seen this movie before. North Korea has made lots of promises over the years and simply been lying the whole time. Rising GDP could be impacted by trade conflicts with allies and partners. On the surface we see progress, but we also could see disruptions occurring as well.
So, what is the good and the bad that we can gather from the G7 meeting in Canada, followed by the historic summit between President Trump and the leader of North Korea – Kim Jong Un?
At first glance, the media has painted the conflict between the US and our trade partners as existential, and the President’s uncouthness as a roadblock to more agreeable negotiation. As for the North Korean summit – hard to put that one in a bad light, but also more difficult to believe North Korea can be trusted to keep its word on anything it agrees to.
So, the good and the bad, the pros and the cons, of two very important global meetings with America’s friends, and a dangerous longtime enemy …
I. The good results from this week’s global diplomacy:
- “We stood for fair trade”: “Tariff” has become a prominent search engine term in the last two years, and it dominated the discussions at the annual G7 summit in Quebec. Most of our allies do benefit from protecting their domestic industries at the expense of US producers. We do not have a free trade market between our allies – we have a protected market for some, and an open market here in the US. The imbalance may not be as burdensome as Trump claims, and America protects some of its own industries, but our position of “fair trade” is the right one even if the messenger is not well liked.
- “Zero-tariff offer was a masterstroke”: Offering a “zero-tariff” trade regime was a masterstroke, even if few countries will agree to it. And that is the rub – protecting domestic industry is the primary political objective of our allies, NOT trading freely. Ironically, if the other G7 countries took us up on it, they would benefit greatly, since tariffs are not a significant benefit to our allies as non-monetary barriers to the marketplace. The Europeans, Canadians and Japanese benefit far more from quotas, environmental regulations and other forms of restrictions than just slapping a tariff on a US car. If they agreed to our offer, they would still hold the upper hand while giving the US some political wiggle room. It is not our President, but the other G7 countries, who do not seem to be making the most intellectually honest decisions when it comes to global trade. That is not what you will read in the mainstream media.
- “North Korea comes to the table”: Decades of threats, negotiation, more threats, less negotiation … ALL came to head as the President met with the leader of North Korea. It was the first time since the cease fire ending the Korean War that the leaders of these two countries have met. North Korea may be backwards, the supplicant to China, and no bigger than the state of Mississippi – some of the many reasons previous administrations would never have granted a meeting. But now they are a nuclear power, and the playbook has changed. Denuclearize the peninsula, or even better, pull the North from their client status with China, and you are talking about globally historic events on a grand scale with few modern parallels. It was just a meeting, but the perhaps the first positive steps to very big things in the near future!
II. The bad results from this week’s global diplomacy:
- “Fighting with Allies may not help us long-term”: Yes the Canadians changed the terms of the communique without advising us, and yes there is a global trade imbalance between America and her allies, but when you’re the “biggest bull” at the table, you don’t have to publicly respond to every slight … it can be seen as a sign of weakness. Furthermore, the trade imbalance is oftentimes a reflection of our ability to consume more than everyone else, which is not a sign of weakness, but of strength. In general, you don’t need to be in public fights with allies while facing a resurgent Russia and adversarial China. We have bigger fish to fry.
- “Zero-tariff offer is a non-starter for the G7”: As shared above, despite his verbose nature, and un-diplomatic way of treating friends, his underlying position is correct: we do not exist in a world of free trade, we live under a managed trade system that is balanced against US interests. In 1945, it made sense as rebuilding the world to be an effective bulwark against global communism was the highest priority. That world ended in the early 1990’s. Our allies will not accept a zero-tariff regime since it would hurt them more than it would hurt us.
- “North Korea got a concession but offered nothing much new in return”: Saying they are committed to a denuclearization of the Korean peninsula – which would also mean South Korea – is nothing new. And to have Trump unilaterally end US wargame exercises without anything in return was not, on the surface, a win for US interests. Yes, we got three prisoners released, which was a welcome moment for family, friends and the entire country, but there is not much “there, there” to what Trump obtained from the summit.
There are several steps critical to success in North Korea – and they are Reaganesque in nature: 1) Any agreement will require a “trust but verify” process; 2) That process would include American inspectors with unfettered access to disclosed – and undisclosed – sites, basically the opposite of what took place in the JCPOA (Iran deal); 3) the historical record of where any fissile material, plutonium, scientific data….any and all records of where nuke info and material has been transported outside the county; and, 3) written assurances to improvements in the human rights conditions for the people of North Korea.
Global diplomacy went in some surprising directions this week. Trade will go on, but the Korean peninsula will be a long-term fix … if it is fixable. Most interesting is that markets seemed unaffected by all of the news. Fed rate hikes are probably a greater threat than the “global chaos” we see around us.
Either way, it sure is better to be protected from market downturns than exposed to market risks. Call Now to speak with an expert Advisor at no cost or obligation! 877-912-1919