Broker Check

The President’s Trade Gambit?

| March 16, 2018
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In the most recent edition of our print newsletter Flourishing (watch for it in your mail), I gave the Trump Administration a pat on the back for favorable economic policies during their first year in office.  Since that was written, President Trump’s Chief Economic Advisor Gary Cohn, has resigned over a disagreement with others in the White House, most notably the president, regarding a proposal to impose tariffs of 25% on steel imports and 10% on aluminum imports.  That news has put investors around the world into a bit of a dither.

The alleged benefit of these new tariffs is to make American steel and aluminum producers more competitive with foreign companies. Like Gary Cohn, I disagree with that assessment. In truth, tariffs are taxes on imports, which make those imports more expensive for American buyers. So, although they might help American aluminum and steel producers in the short run, these tariffs would raise the cost of aluminum and steel for other American industries, like car makers.  Naturally, those increased costs would be passed along to American consumers.  Moreover, tariffs invite retaliation by countries like China and the European Union (EU). If that process escalates into a global trade war, everyone loses.

But wait!  I do not believe that is going to happen.  This is not 1930, and Trump’s tariff proposals are not The Smoot-Hawley Act, which exacerbated and prolonged the Great Depression. Not even close.  I believe that Trump’s tariff proposals are just another round of negotiation in his continuing campaign to get better terms on old trade agreements.  No one can be sure of the ultimate outcome, of course, but I think he’s likely to have at least some success. My worry is more about inflation than trade war, but we’ll see.

As I said in the newsletter, one can hardly argue with the economic record established in the last thirteen months.  It’s been pretty good, despite – or maybe because of – the president’s overnight/every night tweet storms.  mh

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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