The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Will There Be Trade Wars?

The White House rhetoric on trade policy putting the US first is worrying many observers. They are concerned about an unleashing of trade wars. The Trump administration is threatening trade tariffs of 20% against nations in which the Administration deems to be trading ‘unfairly.’

Is the White House serious about carrying these threats out?

The AP had this article on writes this about trade policy:

With the political world distracted by President Trump’s media wars, one of the most consequential and contentious internal debates of his presidency unfolded during a tense meeting Monday in the Roosevelt Room of the White House, administration sources tell Axios.

With more than 20 top officials present, including Trump and Vice President Pence, the president and a small band of America First advisers made it clear they’re hell-bent on imposing tariffs — potentially in the 20% range — on steel, and likely other imports.

The penalties could eventually extend to other imports. Among those that may be considered: aluminum, semiconductors, paper, and appliances like washing machines.

One official estimated the sentiment in the room as 22 against and 3 in favor — but since one of the three is named Donald Trump, it was case closed. No decision has been made, but the President is leaning towards imposing tariffs, despite opposition from nearly all his Cabinet.

In a plan pushed by Commerce Secretary Wilbur Ross, and backed by chief strategist Steve Bannon (not present at the meeting), trade policy director Peter Navarro and senior policy adviser Stephen Miller, the United States would impose tariffs on China and other big exporters of steel. Neither Mike Pence nor Jared Kushner weighed in either way.

We believe it is a negotiating tactic, and that the US is not heading in the direction of imposing tariffs on imports. The tactic:  ‘Ask for the moon, and be ready to settle for what is fair.’

We have seen that several times already with Trump. It’s smart. You don’t go into negotiations asking for that which you would accept at the end. The fact that the details got into the media shows that it is intentional.

For example, take the visit of the head of South Korea to the White House. That country sells a huge number of cars to the US while US carmakers face big obstacles trying to sell their cars in Korea. The idea was to impose tariffs on South Korea cars. But nothing has happened so far.

We remember when trade with Germany was not ‘fair’ when it came to cars. US made cars had to have tail and headlights meeting strict requirements of Germany. This included a separate brake light in the back instead of one that just shines brighter when the brake was hit. Furthermore, the brakes would be tested with a certain weight on the pedal and then driven a long distance. A car shop said that US car brakes would usually burn up. (German cars had disk brakes, while US cars had the old brake shoes.) Certainly, that was designed to reduce imports of US cars into Germany. The gas tank had to have a special drain plug, etc.

President Trump is insisting on ‘fair trade,” not free trade. He is negotiating with rhetoric. It’s humorous when you hear people in the news criticizing the Presidents statements, although they know nothing about his intent. He is the opposite of the last president who would broadcast his intentions so that the opposition could prepare and defeat his agenda. That wasn’t smart.

CONCLUSION: before judging, we should all wait for the final event. Don’t be in too much of a hurry to pre-judge this US president. He is the first successful businessman in the White House in many decades. The most vociferous critics are often the ones we wouldn’t trust to give us directions to the restroom.

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