Trade Wars and Government Shutdowns Can Be Fishy Business

We have written with some regularity about the consequences of trade wars.


The Apple story and the potentially larger economic slowdown in China are a case in point. There are consequences to all of this for all parties involved. In general, we do support free trade in the ideal world where there are no barriers to trade. Basic economic theory suggests that these friction costs disrupt the maximum benefit available to all people when those who can produce most effectively and efficiently are not properly rewarded, thereby driving up overall costs for consumers. With lower or even no trade barriers, the law of comparative advantage is allowed to work unimpeded.

But theories can become problematic as the messiness of politics and practical concerns such as product quality, labor fairness, and environmental considerations are added to the equation. President Trump’s decades-long interest in seeking fairer trade deals for the US with other countries is now being acted upon, creating a disruption of the status quo, which in turn creates shorter-term uncertainties. Whether the long-term scenario is destined to create freer and fairer trade among countries as a result of the current trade negotiations and brinksmanship is yet to be known. We do know that it takes a fair amount of chutzpah to challenge the status quo in trade, even if the potential benefits are to lower overall trade barriers in the long term. However, the president seems to have a ready supply of chutzpah. We, like many others, are monitoring the trade war situation that impacts the financial markets so heavily.

In the meantime, there are the really practical concerns of trade uncertainty, many of them very unpleasant, that are felt at the business and entrepreneurial levels. Markets and businesses prefer certainty in order to chart the future and to make plans. Uncertainty slows down business and puts people and markets into a wait-and-see mode of operation focused on risk management and capital preservation. Adding tariffs or even threatening more tariffs has specific short-term consequences, creating disruptions and costs that will ultimately reach the consumer in real ways. There are hundreds of anecdotes of the personal costs playing out now across many industries as a result of these trade uncertainties.

As one example, we know of a situation in the international fish-brokerage business (quality fish deliveries here, nothing “fishy” about it) where the uncertainties of tariffs, coupled with the government shutdown, have delivered double uncertainty and added costs, imposing a one-two punch. As the 10% China tariffs kicked in, including a tariff on fish imports, the threat of the 25% tariff became very real. Some brokers negotiated early shipping and delivery to help customers avoid the 25% tariff. When that tariff was postponed in early December, customers saw no economic reason to take early delivery. This disconnect rendered product that was in transit temporarily unwanted, causing some consternation for the brokerage. The trade relationship is therefore tested, as significant daily storage fees per container are then added to costs.

Adding to the equation, the government shutdown means that Homeland Security agents are not able to perform their surveillance checks on the containers. Product is sitting in port (refrigerated, obviously), creating further delays in the resolution of the situation. This is a case where the government shutdown has actual business costs that are not just inconveniences to consumers and government workers. These types of anecdotes are stacking up across the spectrum of businesses with international and trade connections.

We can only hope that the trade uncertainty gets sorted out soon for the benefit of all involved and certainly for our friends in the international fish business. The ongoing discussions with China, if resolved in a workable framework, will certainly alleviate much uncertainty and may also provide some needed risk appetite to the financial markets. The economic picture has been in recent times very robust. However, we are now seeing potential slowdown (cue China and the Apple shortfalls in sales) that means all of this brinksmanship has consequences on both sides of the world. Maybe it is time for somebody to blink and get moving toward resolution. Trade resolutions could put significant wind back into the sails of a stock market that has seen a nasty selloff in recent weeks. That aside, getting the government back to work is also an immediate priority for very practical reasons like import processing and other business/security functions. We will stay tuned into the investment-related aspects of these very important concerns which have market implications for the many years going forward.

Michael McNiven, Ph.D.
Senior Vice President
Email | Bio

Surplus, Interest, Debt: Personal Finance in a Nutshell

What follows here is a basic guide for individuals regarding their personal approach to debt management and wealth creation.

Surplus, Interest, Debt - Personal Finance in a Nutshell

U.S. household consumer debt has reached an all-time high above $14 trillion as of the time of this writing, July 2019 (U.S. consumer debt hit $14 trillion in 2019). This includes student loans, auto loans, credit cards, and mortgages/home equity lines of credit. Many of our friends and neighbors of all socioeconomic classes have not been exposed enough to fundamental financial principles.  Feel free to share it with others in your communities who may benefit from a refresher on these basic points.

An easy to share and downloadable PDF version of this piece is available here:

Surplus, Interest, Debt: Personal Finance in a Nutshell

Far too many people are living beyond their means. Many of us are spending more money than we make. Many of us are living inflated lifestyles supported by debt. Far too many of us are not prepared for unemployment or economic disruptions. A large group of us are not prepared for even minor financial emergencies. Many workers are not saving enough for retirement. Somewhere along the line, a vast majority of us—including high-income earners—have not been taught how to think properly about money or to transcend the cycle of debt and perpetual want.

There is a better way. It begins by thinking properly about surplus and interest and the dangers of indebtedness. We then can learn how consistent saving over time can take part in the grandeur of investment and compound interest. Albert Einstein called compound interest “the greatest mathematical discovery of all time.”(1)  When money is mixed with time, good things can happen. As such, we may benefit from a renewed understanding of the words surplus, interest and debt. We can begin with a very basic socioeconomic classification of people based on these concepts.

Four Economic Classes of People (Which one are you?)
1.      The Destitute: The truly forgotten men, women and sometimes children. They are homeless and often helpless. They need our empathy, respect and assistance to secure food, shelter, clothing and fuel.
2.      The Dependents: They rely on others including the government or family for the majority of their personal maintenance and support.
3.      The Poor: They pay interest.
4.      The Rich: They receive interest.

Everyone has income and expenses. When our expenses are higher than income, we have debt. When the income is higher than our expenses, we have a surplus (Income + Expenses = Surplus or Debt). It is a simple concept that even a child can understand. Whatever one’s circumstances, the key concept is to create a surplus and to then build financial security from there forward.

Things to do:
1. Create a surplus. This can happen on any income.
2. Direct surplus for short-term cash reserve ($1000, then 3 months expenses)
3. Use surplus to pay down debt, start with credit cards, cars, education, home.
4. Use surplus to build savings and then investments to start receiving interest.

Education Charts: Compounding Interest and Growth Rate Returns

Take a look at Chart 1. Starting at age 19, Investor A contributes $2,000 per year for eight years ($16,000 total) and then invests the money until retirement (39 years more). In contrast, Investor B did not start investing until age 27 at $2,000 per year for the next 39 years (total investment $78,000). The charts show returns for each investor assuming average annual returns of 6%, 8% and even 10%. Receiving interest over time can be rewarding.

Take a look at Chart 2. This chart shows how many years it takes an investment of $10,000 to double given the interest rate/portfolio returns it can achieve. It is clear from the chart that getting to 6% per year or greater returns is important for accelerating investment growth.

Chart 1 - Compounding Interest and Growth Rate Returns
Chart 1: Compound Interest & the Time Value of Money

Chart 2 - Compounding Interest and Growth Rate Returns
Chart 2: Years Needed to Double Investment (Compound Interest)

The power of compounding interest is one of the finest natural laws, and it does not discriminate. To begin to achieve its benefits, start by generating a surplus. When you increase your lifestyle to consume your present income and even leverage that position through heavy debt loads, then your expenses exceed your earnings and you have no surplus (negative surplus = debt). With no surplus, you forfeit the opportunity to pay down debt and eventually build wealth through receiving interest. Somebody else is getting richer while you are a slave to debt. The future is uncertain if people do not understand nor are taught personal financial management. It is really simple and basic:

If your inflow is less than your outflow, then your upkeep is contributing to your downfall!
Your earning power must be greater than your yearning power!
Einstein Einstein Quote - Power of compound Interest

In a world plagued by debt spirals both personal and governmental, many people have never been taught about the wonderful effects of living with a surplus and the magic of receiving interest rather than paying it. Consistent surplus and effective investment including owning your own home is the most defensible way to build financial security and even wealth over time. The key to becoming more financially healthy and independent is to begin to think differently and to have a plan to get out of debt. This can be done on any income. We can start with a surplus mentality and build our financial future on that solid foundation.

Michael McNiven, Ph.D.
Senior Vice President of Business Development and National Accounts
Email | Bio

(1) “Investing 101: The Concept of Compounding,” Investopedia, found at

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