‘Tarrified!’ – Trade War Hysterics
Right or wrong, good or bad, here are the two MAIN reasons we are in a trade war with China:
Here is what each country is importing from and exporting to each other:
And while we believe tariff increases will not help the U.S. economy in the shorter-term, we also believe it is not time to hit the panic button, as $250 billion of tariffs, spread over $14 trillion of consumer spending, is not necessarily recession-inducing. It certainly is true that some U.S. businesses, like soybean farmers, are hurt. However, after trade talks with China ended without agreement earlier this month, President Trump increased direct payments to farmers by $14.5 billion, plus another $1.6 billion in related aid.
Why are we pursuing this trade policy? Two primary reasons:
- China has stolen hundreds of billions of dollars of research and development (R&D) and intellectual property (IP) from companies that are at the leading edge of growth. This has been a glaring issue that the World Trade Organization (WTO) has failed to address for decades.
- As illustrated above, the large and growing trade deficit the United States has with China, partly due to the fact that China has higher tariffs on imports than the US does. The current U.S. administration believes that working to eliminate these lopsided tariffs is worthwhile.
Clearly free trade benefits all involved parties and economies. But leveling the playing field and fighting the massive theft of IP is extremely important for the longer-term health of our economy. Such violations — from counterfeiting famous brands and stealing trade secrets, to pressuring companies to share technology with local companies to gain access to China’s vast market — have long angered many of China’s overseas competitors. As a result, companies are wary of doing business there.
And right or wrong, good or bad, if tariffs nick our economy, China’s gets hammered. Last year we exported $180 billion in goods and services to China, which is 0.9% of our GDP. Meanwhile, China exported $559 billion to the U.S., which is 4.6% of their economy. We have enormous economic leverage that they simply cannot match. An extended U.S.-China trade battle means U.S. companies will shift supply chains out of China and toward places like Singapore, Vietnam, Mexico, or back home here in the USA. If that happens, the Chinese economy will be hurt for decades.
Quoting Don Rissmiller, chief economist at institutional research firm Strategas, “This is not the best time for a trade war. [However], it might be fair to say there is no good time for a trade war.” While we agree, and let’s hope President’s Trump and Xi do too, we feel it is important to simply understand the reasons why this is happening.
Eschleman and LaTurner in the Windy City
Shifting gears to somewhat closer to home, President, Joseph F. Eschleman and Partner – Wealth Advisor, Jonathan LaTurner, spent two full days in Chicago last week, keeping their professional saws sharp at a wealth management conference hosted by First Trust Advisors. Joseph and Jonathan enjoyed a thorough financial “deep-dive” at the conference, learning more about the current and future state of the U.S. and global economy and financial markets, in addition to presentations about practice management and also the current U.S. political landscape.
However, you can’t go to Chicago and have the trip be all work and no play! Joseph and Jonathan managed to fit in a Chicago Cubs game at Wrigley Field, and a business dinner at Gibsons Bar & Steakhouse as well!
In addition to trade wars and trips to the Windy City, there have been a number of trending and notable events that have occurred over the past two weeks:
- Uber goes public, in one of the biggest tech IPOs in years
- Mother’s Day 2019
- The New Orleans Pelicans land the top spot in the 2019 NBA draft lottery, chance to pick freshman sensation Zion Williamson
- Alabama passes controversial almost near-total abortion ban
- Internet sensation Grumpy Cat, dead at 7
- The Golden State Warriors sweep the Portland Trail Blazers to reach their 5th straight NBA Finals
- Game of Thrones finale sets records with 13.6 million TV viewers, 19.3 million overall
- Massive tornado strikes Jefferson City, Missouri
- Theresa May set to resign as U.K. Prime Minister after Brexit failure
Lastly, please take three or four minutes to review the curated content found below, highlighted by:
- A Special Market Update we just published today, “Trade Wars, Volatility, and Fear, Oh My!”
- A well-written article that discusses the many considerations associated with California residency rules, from both a personal and an income tax standpoint
- Calorie Mama, an app that gives you nutritional information on any food you take a picture of!
We encourage you to reach out to us (firstname.lastname@example.org) with any questions, concerns, or needs you have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.