Put me down as skeptical that this whole Tariff/Trade War narrative will blossom as the media fears that it will. I believe the Trump administration is using tariffs as a way to negotiate and to extract other concessions from various trade partners. Let’s take China, for instance. Talk with any business person who does business with or has a manufacturing plant in China, and they will tell you that theft of intellectual property is a big issue. Take golf clubs, for instance. Most of the major golf club companies manufacture in China. Why is it that you can go to a major golf retailer and find knock-off brands that look exactly like the major brands but cost much less? Because Chinese manufacturers take the clubhead mold, copy it, and go down the street and set up shop on their own using the copied mold. There are similar stories out there in a number of different industries. The Trump administration states they are acting with tariffs in an effort to end intellectual property theft.
I hate tariffs because they harm the general public in an effort to protect a small segment of the economy. Steelworkers may enjoy steel tariffs but the general population won’t enjoy paying more for their cars. All that said, you can’t argue with the administration’s position that intellectual property theft is a problem. I would argue that there may be better ways to affect intellectual property theft. However, whatever has been tried to date has not been fully successful. I am skeptical that the threat of tariffs will be any more successful than has any other method of negotiating with people who steal intellectual property.
Stay in the USA
I think another part of the tariff threat is to encourage US manufacturers to remain in the US. This, in addition to Trump outright shaming companies who consider moving out of the US, such as he recently did with Harley-Davidson. Maybe the thought that a company’s goods would be hit with a tariff once they are imported back into the US will be enough to make the company choose to remain in the US. Seems far-fetched but maybe.
There is near unanimity in the financial press that tariffs are bad. This is another reason why I am skeptical that the tariff threat will amount to much. President Trump loves to tweak the press. He will do things just to spite the press, but I don’t think he will actually act to harm the US economy.
Another reason given out there is that Trump is floating tariffs in order to prop up his electoral base prior to the 2020 Presidential Election. This seems far-fetched to me because I am not reading about a groundswell of support for these tariff threats.
While I concede there will be some targeted tariffs implemented, I don’t think tariffs will be widespread and I think the negative press about tariffs will far outweigh the actual tariffs. I believe tariffs will eventually put on the back burner as an issue when some other issue arises to take its place. As for your investments, hold your course, and maybe look for any correction caused by new tariff threats as an opportunity to add to your positions.