Lenin noted “there are decades when nothing happens and weeks when decades happen”. It pithily captures situations where tectonic change was hidden by the mirage of equilibrium. With a little rearranging, it might also describe the beginning of Donald Trump’s presidency; there are no days when nothing happens and often nanoseconds when decades happen. Harold Wilson opined that a week was a long time in politics but on Capitol Hill, it’s akin to a geological age. It is more than possible that by the time you read this, Antarctica’s been annexed, Canada’s become New Montana and ships are traversing the Trumplantic Ocean, perhaps en route to the Gulf of Mexico …. err …. I mean America. Anyway, for what it’s worth, here is our attempt at deciphering the logic (or otherwise) of Trump’s tariff tangles.
It appears he is trying to solve the U.S.’s balance of payments problem in the crudest manner by regarding any nation selling more to the U.S. than the U.S. sells to it, as “ripping off” Uncle Sam. This is beyond ignorant. In reality, it simply means such nations are better at producing certain goods than America. Trump’s main trade adviser, Peter Navarro, cites Vietnam as a country that “sells $15 of goods to the U.S. in exchange for $1 of goods the Vietnamese buy from the U.S.” Perhaps this is because labour rates in the former are around $150 per week. The likes of Nike manufacture there which means Nike makes good money and Americans receive cheap trainers. Who is ripping who off? How many folks in Chicago would work for $3.75 per hour? In fact, as Illinois’ minimum wage is $15 an hour, it’s an impossibility. Maybe Vietnam should whack the U.S. with tariffs for ripping off its workforce? Or, perhaps Trump should simply explain to U.S. citizens why their Air Max High Tops might soon cost a lot more? Elon Musk called Navarro a ‘moron’ who was “dumber than a sack of bricks” after he’d labelled Musk’s Tesla a “car assembler” rather than a maker. Personally, I think Musk was being kind, a sentiment reinforced by Navarro himself, who, clearly oblivious to the concept of irony, confirmed he’d “been called worse”. I suspect that’s true ….
Trump has yet to grasp that if tariffs are reciprocated, it’s MAGA’s heartland that will pay them. He said “we are going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they have been taking over the years.” Yeah, way to go. Let’s show those pesky foreigners who’s the boss by imposing taxes ….. on ourselves! And while we’re at it, we’ll risk triggering a deep global recession when we are $36 trillion in debt and spend 14% of government revenue merely paying the interest. What could possibly go wrong? Especially when some of those countries own substantial holdings of U.S. Treasury bonds and might not be too keen to add to them, especially as the dollar weakens. Who knows, they may even begin selling? Then again, I’m sure there’s nothing to worry about because as we all know, nobody negotiates like the President. You only have to see the results of his deliberations with Putin to see how Vlad has fallen into line.
China has been hit with 125% tariffs although Trump then appeared to relent with regard to smartphones and electronics. You’d have thought someone (anyone … ?) might have noticed that China produces a lot of this stuff and it would subsequently fuel U.S. inflation, thus making such goods massively more expensive. The Chinese Foreign Minister commented “The U.S. imposition of abnormally high tariffs on China seriously violates international and economic trade rules, basic economic laws and common sense.” Odd, isn’t it, that the communist gets it and the capitalist doesn’t? Furthermore, I wonder where those MAGA baseball caps are made? I have a sneaky feeling they are about to double in price.
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
