Some people, both on the ‘left’ and the ‘right’, get mad when you argue that the Trump tariffs and supposed trade war have not, and will not have, any negative affects on the US economy.
“If the two biggest economies in the world are in a trade war, how can it not have a negative affect!”
“You think an economic tug of war between the two biggest economy’s has no affect on profit and earnings, or consumer spending?”
First, there is no actual trade war, but rather a media-generated one. The media is doing a great job convincing the public there is a war, when no war actually exists. Trade volume with China has increased since the tariffs began, in early 2018.
My take is, this talk of ‘trade wars’ is overblown and there will be no negative impact on the stock market or economy. It’s worth noting that the S&P and US economy boomed in the 80′s, but NAFTA was ratified in 1992, so it’s not like the economy is dependent on it. There is this narrative by the financial media and elsewhere that the economy hinges on trade deals, but it doesn’t. Trade will always exist, and putting some small tariffs on a handful of goods as a sort of ‘symbolic gesture’ (or what Scott calls the ‘Batman effect’) will not impede global commerce. Neither side, US and China, wants a war, because neither side benefits.
Regarding inflation, profits and earnings, and spending, it’s not a matter of what I or anyone else thinks. It’s not a matter of opinion, but rather can be verified by looking at the actual economic data and earnings reports, regardless of the narrative pushed by the media.
The cold, hard data shows that the tariffs have not been inflationary in terms of CPI, have not hurt consumer spending, and have not hurt profits and earnings for multinationals. Amazon, Google, Facebook, Apple, Disney, Nike keep reporting strong earnings.
CPI has not budged in spite of these tariffs, at around 2.2%. What happens is the cost is spread out over many goods and absorbed along the supply chain and companies, so the end result for consumers is very little if any inflation, but also there are still hundreds of billions of dollars of goods unaffected by tariffs.
Josh Brown disagrees, writing:
But that’s not stopping him from weighing in, via the Wall Street Journal Editorial Board, and seeking to protect his Frankenstein from self-immolation. It’s clear that he’s seen enough of the punch-drunk Tariff War being waged by the White House against China and is starting to watch the dominos fall as a result of it. You can’t bring China to its knees without also destroying Europe and this, in turn, hits both Corporate America and the US consumer – two constituencies that are key to the reelection (and the profitability of Fox News and Murdoch’s other interests around the world).
He calls himself the reformed broker, but it’s more like the reformed butthead. How can anyone take him seriously as a financial adviser after writing something like this. Yeah we get it you don’t like Trump, but this is just silly hyperbole.
This is the 5th time in 1.5 years that Trump has put tariffs on China, yet the S&P 500 is only 5.5% off its all-time highs. I would hardly call that “dominoes falling” but rather such a correction is within the market’s normal volatility. In the absesne of any tariffs or any obvious catalyst, 4-10% corrections occur about once or twice per year
Regarding corporate America and the US consumer, the trade spat between the US and China does not affect the propensity of Americans to consume, to stream Netflix, to use Facebook and Google, to go to Starbucks, to shop at Walmart and Amazon, to go to Disneyland, or to click on ads. No one has ever said “Darn it…got to cancel my Disney vacation because Trump and China are at it again.” Just today, on 8/15/2019, Walmart beat earnings expectations, reporting an earnings per share of $1.27, vs. $1.22 expected.
Also, even if there is high inflation, which there isn’t, it just gets imputed into all the data, much like in algebra simply shifting a line along the y-axis, or in linear algebra resizing a shape with a transformation matrix that keeps the underlying geometry intact.
Another common argument is that Trump’s supposed ignorance of economics will doom the economy, as if Trump’s inability to understand how an inverted yield curve works is the only thing standing in the way of a booming economy. The interesting thing about Trump is in spite of his divisive rhetoric, he really wants to be liked by as many people as possible. This is why he’s always backtracking. He floats out an idea/policy and if it does not work to his liking, he’ll retreat. The last thing he is gonna do is have the economy and stock market fail on his watch if he can do anything to prevent it. But also, for two decades, Presidents deferred to Greenspan and other experts, yet that did not stop the economy from tanking in 2007, so it’s not like these experts are always right, or that anyone has the power to stave off autonomous economic forces and decades of mismanagement within a single term.
2-5 months from now when SPY is at new highs ppl gonna be wondering what all the fuss was about, “the media keeps saying that these tariffs will doom the economy yet profits and earnings and GDP keep being strong and unemployment keeps being low”