Jingoism & Rare Earths

Author: David R. Kotok, Post Date: June 5, 2019
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“The Trump Administration last year recognized the importance of rare earths elements – albeit as an after-thought – when it pulled them off a list of Chinese imports to be hit with US tariffs. China mines about 80% of the 17 elements that appear on the Periodic Table, and has a lock on about 90% of rare earth processing.”

Source: “How the US lost the plot on rare earths” – a good primer on rare earths, at http://www.mining.com/web/us-lost-plot-rare-earths/ .

The Trump trade war expansion has reached a new and higher risk threshold. It is not just about China and rare earths; China’s threat to play the rare-earths card could mark a turning point.

In addition to complicating the China dispute, the Mexico round has intensified the adverse reactions among Republicans in the US Senate to Trump’s trade-war jingoism. Grassley is now a critical person. We shall see how these politics unfold.

Meanwhile, Mexico’s retaliation is likely to target US agriculture and add to what is certainly a shock to bilateral US-Mexico trade. Launching a tariff war with Mexico while simultaneously attempting to ratify the USMCA is incomprehensible. Many are labeling it a colossal Trump blunder. News reports infer Mnuchin and Lighthizer recommended against Mexico tariffs.

Our view from the perspective of portfolio management is that we must focus on the global rise of protectionism and nationalism and the use of jingoistic weapons. Trump has already changed the global paradigm. Diplomats had a code of negotiation behavior. It is destroyed.

The history of jingoistic rhetoric and behavior is not encouraging. Here’s what the Encyclopaedia Britannica has to say about the origins of jingoism:

“Jingoism, an attitude of belligerent nationalism, the English equivalent of the term chauvinism. The term apparently originated in England during the Russo-Turkish War of 1877–78 when the British Mediterranean squadron was sent to Gallipoli to restrain Russia and war fever was aroused. Supporters of the British government’s policy toward Russia came to be called jingoes as a result of the phrase ‘by jingo,’ which appeared in the refrain of a popular song:

We don’t want to fight, yet by jingo, if we do,
We’ve got the ships, we’ve got the men,
And got the money, too!”

(Source: https://www.britannica.com/topic/jingoism)

Now jingoism has become a term relevant to portfolio management. This is true in America, China, Mexico and elsewhere. Jingoism raises risk premia.

At Cumberland we have a cash reserve in ETF accounts. Bonds favor very high credit quality.

 

David R. Kotok
Chairman and Chief Investment Officer
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