Trade War So What?

FinanceTrading / Investing

  • Author Fabio Braga
  • Published October 19, 2018
  • Word count 560

"Trade War" So What? September 17, 2018

Off and on now for months headlines in both print and television have been full with stories about the huge threat posed by the Trade Policy of the Trump administration. It is as if some horrible economic catastrophe will impoverish the world. Make no mistake, we are not Trump fans, but on this issue there truly is some fake news going on. Powerful economic (read Big Multinational Companies) and extreme ideological forces (read dishonest partisans) are at work here. There is certainly cause for concern but, to know where near what it is shaping up to be.

The expansion of world trade in the past 50 years has been remarkable and in a general sense been of tremendous value to the people of poor countries. Hundreds of millions of people have been lifted out of poverty. There is however, an underlying perception that had this not proceeded in the manner that it did, people around the world would be suffering. First of all there was never was "free trade". There has always been and still are a wide range of tariffs on all kinds of goods. Even in so called free trade agreements there are still tariffs and exceptions to key industries and services.

Another issue not appreciated is that the vast majority of world trade value is in discretionary goods or, depending on one’s judgment, luxury items. Think of BMW’s going from Europe to the U.S. and vice versa. Those who deride expanded trade with China as devastating developed world manufacturing jobs have a point when they ask "So a set of cheap steak knives at Wal-Mart goes from $ 14.99 to $ 21.99 or a big flat screen T V goes from $2,500 to $3,200? The world economy is not going to grind to a halt.

Trump got elected because of the long simmering resentment by Middle American’s that the developing world was stealing their jobs and taking advantage of open markets that they don’t allow. The real truth is that large multinational companies (the same one that closed their local factory in 2002) pushed for a system where they could move manufacturing to Thailand or Mexico or China and make more money. China and the rest of the developing world were simply taking advantage of the relentless push of world capitalism. As for lack of access, tariffs and non trade barriers, how many Cadillac’s or Harley Davidson’s are the Chinese and Japanese going to buy anyways?

As our hard core technical analyst of the stock market will tell you" what the pundits and talking heads attribute to the daily ups and downs in the market are rubbish! "What are they supposed to say: Today the NASDAQ went down because there was more selling than buying? Taking any news and attributing it to explain the daily vagaries of the stock market is the original Fake News and always will be. Unfortunately it has a self fulfilling aspect that shades the truth.

Today the real concern here is too much debt in China and too much U.S. dollar debt by governments and companies in the developing world. If there is a slowdown in the world economy it will be because of the unwinding of these issues. Trump trade policies don’t help but they won’t be the cause.

Fabio Braga, Director of Research,

Fabio Braga is a 25 year veteran in securities industry. He's specialty is Macro Economic, Fore-casting.

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