Trump, Trade, Will Rogers

Author: David R. Kotok, Post Date: April 9, 2018

“It was a tumultuous first week of the quarter that has left the markets caught between more truculent tweets on trade from President Trump, and slightly more diplomatic messages from his advisors. Predictably China countered with $50 bln in tariffs of their own against a variety of U.S. imports, while the White House threatened to lump on another $100 bln tariffs to the $50 bln already on the table. Advisors Navarro and Kudlow, along with Treasury’s Mnuchin, said this was not a full blown “trade war,” but were vague as to whether negotiations had even begun, while China’s commerce ministry denied any talks had been launched.” – Action Weekly! Global Edition, April 9

“Trump’s ‘Good’ And ‘Easy To Win’ Trade War Actually Might Be Neither. States that had voted for Obama and then swung Trump’s way could be hit the hardest.” – Huffington Post headline, April 4

“White House Press Secretary Sarah Sanders said Friday that the president doesn’t want to enter a trade war with China, but if he does, he’ll win. Key quote: President Trump ‘absolutely’ still believes trade wars are easy to win. ‘If he is in charge of those negotiations, then absolutely. He’s the best negotiator…’” –, April 6

“Donald Trump is right – the United States is not in a trade war with China. At least, not yet. As the rhetoric has flown back and forth between Washington and Beijing, breathless news coverage has made it seem as though the war of tariffs has already begun. It has not – hardly any new duties have been levied. At most, the world is in its July 1914 moment, with the clouds of trade war gathering but shots not yet fired. We’ll know soon enough whether that is indeed the correct historical analogy. For now, the war is just words, and it would be best for the planet if that’s as far as it goes, because the only way to win a trade war is not to fight it.” – Politico, April 7

“Just six words suffice to sum up President Trump’s approach to trade (and, you may mutter, too much else): make threats, strike deals, declare victory.” The Economist, March 31

We thank our friends at TLR (The Liscio Report) for their kind words about our commentaries about trade (and we thank David Blond, Bob Brusca, and Mike Drury for their guest pieces on trade and Trump). By the way, in our opinion TLR is one of the highest-frequency reports (it’s weekly) that might discern some impact on the US economy from the trade war or trade rhetoric. This research publication tracks employment data in each of the 50 states. I read it regularly and recommend it highly. Call 518-827-7094 to obtain subscription information or a trial. So far it is too soon to see any signs of trade war talk-induced change in the employment data. Our view is that it won’t be long before we see the first signs of negative impacts from Trump’s destructive bluster.

That is why the White House has already started to warn about some short-term pain for the sake of long-term gain. Larry Kudlow knows the pain is coming. He has seen the impact on the stock market, and he has seen the dramatic swings in certain commodity prices. He knows that an expectations-induced retrenchment is underway. Why would a farmer order a tractor today to plant a legume crop tomorrow when he is uncertain about future demand and prices? Why would a pig farmer build a new barn? If you made a specialty part for an airplane that was purchased by Chinese users, would you adjust your business model? Would you still order that new robot, or would you delay?

The first negative reactions to a trade war threat are changes in business expectations. And they are happening fast now.

US exports to China are varied and substantial:

“American exports of agricultural and other primary products to China totaled nearly $20 billion in 2016, which accounted for 25 percent of the industry’s exports in that year. There were also significant amounts of exports of aircraft (nearly $15 billion), motor vehicles and parts (about $11 billion) and chemicals (more than $13 billion) in 2016.” – Wells Fargo special commentary, April 5

Remember that these figures represent only exports to China, which receives just 7.8% of total US exports. Also remember that the US economy is 70% services, and services are a minuscule part of exports. The pain mentioned by President Trump and his advisers will be levied directly on the American manufacturing and goods-producing sectors and on American agriculture. My dentist in Sarasota is not impacted, but my friends in the heartland of America are already hurt because of the price changes in their markets. And every 401k in the United States has been hurt by an amount that equals all it gained in anticipation of economic growth and the benefits of tax cuts, repatriation, and fiscal stimulus. Yes, Mr. President Trump, there will be pain. You have brought it upon us.

It is clear that nobody wins a trade war. No credible person can point to net gains. A trade war is never a zero-sum game; it’s a loser’s game on both sides. So the big talk about who wins is actually a debate about who will lose more, and that’s about as dumb a debate as anyone can imagine.

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