Market Briefing For Monday, March 5
Perceptions of protectionism as a prosperity killer are valid only with a myopic viewpoint globally. To wit: India (the most egregious for years), China, and many others put tariffs on American goods (except often for food because they needed it and had no capacity to compete with us or provide for themselves without our agricultural products) for decades.
At the same time the United States was asked or presumed naive to just let in or allow untaxed or subsidized goods and services, taking advantage of our lows and consumer demand, with no restrictions. Of course, this was noble on the part of America in the Post-War era but not for decades beyond. I was impressed that even Wilbur Ross pointed this out in his Friday media interviews because it is exactly what I'd decried for years with respect to the inertia with America's trade policies.
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The global trade war issue is an issue on top of a difficult market prior to this. Curiously, rumors of the White House considering reentering TPP (the Transpacific Partnership) surfaced this week too but was ignored as the focus moved to a global series of tariff applications. Of course it would go further than impacting the nominal price of a soda can or car or truck and yes, there could be varying dislocations. And that's the difference. We simply cannot do this successfully, particularly without our Canadian neighbors. That's because they are presently paying a premium to buy American semiconductors and certain other products, because of the strong US Dollar vs a weaker Loony (Canadian Dollar). That approximate 30% swing can be viewed in the same extreme that we're viewing prices of steel or aluminum from of course their mills (lumber too).
My point is that Canada is not a low-cost producer like Asian countries nor is it subsidizing product particularly. Mostly wages and prices are a close match for the United States now and that means it's a currency, not a tariff issue. I think the stock market knows this and presumes that by the time the policy is 'really' defined there will be some adjustment for a situation related almost solely to currency exchange rates and not just a policy to flood our markets. The 'service' end of this can relate for-instance to foreign airlines. One in particular stands out as unfair competition: that's Emirates Air and on a smaller basis, Etihad. American and European carriers are fighting their government subsidies which allow them to offer superb service but at operating costs normal carriers can't compete with. Now it isn't likely you'll put a 'tariff' on them; but fewer landing slots is a way. As to the markets, I suspect if Canada and maybe Mexico are exempted with a provision that deflects concern of 'back-door chain' trans-shipments (such as originate in Asia and hopscotch thru Canada or Mexico) the edge comes off this particular concern.
In sum, what ultimately happens from the more-than-hubris-based shift on trade (because it really is America's overdue retaliation to trade wars aimed at the U.S., and actually at Europe too, for many years), is some sort of compromise. Again 'Art of The Deal' not really a repeat of action that was attempted under George W. Bush (see accompanying chart of that era and the market's break, ensuing rebound and serious decline). Ideally, I'd like to see an update to NAFTA and the US rejoining the TPP with better terms. And the tariffs' threat, or even actual implementations, can lead to that. There's a prospect that the US already tried and failed, in the past year's efforts to renegotiate NAFTA, and now this pressure is likely to bring negotiators closer to making a proper deal. That part isn't in any of the public discussions but the simplicity of 'Foreign Exchange' should be, given that there is a vast difference between 'dumping' steel for instance, trans-shipment, or for that matter Currency Exchange rate impacts, which do not relate to subsidies or nefarious export shipping.
Bottom line The tariff issue is all the rage now; but the market break began weeks ago; had an automatic rally that burst above the resistance levels noted; exhausted that short-covering; and reversed up to down earlier in the week just past, in line with projections. |
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Weekend (final) MarketCast |
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