he US Can Win a Trade War

The US Can Win a Trade War

The tit-for-tat tariffs and war of words over trade imbalances has created the very real possibility of pushing the world into a global trade war.  This will have massive repercussions that could radically impact our economy, our markets, and your investment portfolio.

The conventional wisdom is that all of this is “bad”… bad for markets, bad for stocks … yet several hundred billion in actual tariff’s have already gone into effect, and the sun still came up.  The potential for a looming trade war would typically bottom the market, yet stocks remain within an elevated fixed range.

What’s going on here, is this Trump’s “Art of the Deal,” or someone playing a very strong hand in the game of poker?

 Free trade has been the cornerstone of conservative economic orthodoxy for 70+ years.  When practiced liberally, and through American hegemony, it benefits and has benefitted the entire planet.  Today however, with a large public debt, vanishing industrial base, changing great power interests, and allies who take advantage of US markets, there is little “free” about free trade for the United States.

And trump’s policies seem to be working:

1)  China’s stock market has been down over 20% in the last few months.

2)  The Chinese yuan is down 7% since March.

3)  German car manufacturers have asked the government to eliminate tariffs on US cars – their competitors!

4)  Canadian tourism into the US increased since March, and Canadian agricultural stocks slid when tariffs announced.

US trade policy with our allies as well as China has entered a new era, the outcome of which is past the horizon and unknown at this time.  But it is improbable the US would lose in a battle over free trade and markets:

 

I. Top 3 Reasons the US Can, and Probably Would, Win a Trade War with Everyone Else

  1. “They need us more than we need them.” A childish way to frame the debate perhaps, but true nonetheless.  The party with the trade deficit has the advantage in any trade war, since his side is less dependent on making money from exports than the party with the trade surplus.  Furthermore, most of the trade deficit is in the form of US manufacturers outsourcing – meaning foreign countries are typically exporting US brands back into the US, assembled abroad – demand for US brands would remain in the marketplace … we have things people want, most of our competitors do not.
  2. “U.S. markets are more diverse than competitors.” Mexico is driven by agriculture and manufacturing but is largely a corrupt failed state…..Canada has a diverse economy but smaller constituencies more easily impacted by economic downturns … China and Europe are driven by export growth … ALL, whether they have marketplace diversity or not, still pale in comparison to the deepest markets in the world – the United States.  Changes in any one dominant commodity, say oil for Canada, agriculture for Mexico, autos for Germany, or telecoms (Apple) in China, and you would have radical shifts in the politics and the budgets of those countries.  In the US, it would be painful for some in that particular industry, but would be a minor blip on the larger US GDP number.
  3. “We don’t have free trade today, so fair trade is a victory.”   China steals … everything; Europe, Canada and Mexico all have barriers to their markets which prevents US access, as compared to easy access to US markets; and, the hollowing out of US manufacturing is a direct national security threat.  That is not fair trade.  Fair trade is selling a car in my country, so I get to sell one in yours.  As it stands today, Germany can export cars to the US with a 3% tariff, while US cars are slapped with a 10% tariff.  This occurs across all export markets with all countries.  We do not and have never had free trade – to suggest we did is simply not accurate.  All Trump is doing is attempting to re-balance the trade system to modern circumstances.

This unbalanced trade regime was a byproduct of post-war American hegemony and the policy decision to rebuild the world after World War II.  Allies against communism were the priority at that time.  While China remains communist and many countries are authoritarian, the global threats to the US are substantial, but not the same, as they were in 1945.

Trade wars can make us less prosperous.  They can, in the long run, run the risk of recession or worse.  But not everyone loses equally … their can be a winner … and based upon the data and simple economic reality, the US would find it hard to lose this battle over global trade.

Call now so you can have safe and simple, principal protection products! (877) 912-1919

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