Trump and his Anti-Globalisation

This is the pathway that USA President Donald Trump is pursuing. Firstly, he pulled the USA out of what was then known as the TPP. Then he has recently embarked on a trade war with China.

The President’s populist anti-globalisation message is strong on the “unfairness” of free trade and that it’s time to put America first. That is why it was declared that there would be tariffs imposed on $50 billion of imports from China.

China then responded in a similar manner over USA imports into China. That should not have been surprising at all. It is a standard international countermeasure. It is used with the expulsion of spies or diplomats. The other standard one is the imposition of trade embargoes. The USA is so reliant on China, that a trade embargo with them would just not work.

Now Trump wants to impose an additional $100 billion of tariffs on Chinese imports. If the Chinese Government matches the value in US dollar terms, this potentially has more impact on the prices paid by Chinese consumers, because the total value of Chinese imports from the US is much smaller than the value of US imports from China. A lot of Chinese imports are electronic. Think of all the goods that Apple has produced in China, sent to the USA and then exported to most countries throughout the world. The imported cost is very low, but the exported price is high, possibly exceeding the value of all the planned tariffs combined.

The danger is that Trump is proposing a high-risk strategy. In his own business dealings, he has done that in the past, the result being bankruptcies. He however managed to bounce back from those, with his creditors losing out. There could be real economic damage.

China is a significant importer of US Soy beans. If China elects to favour soy bean imports from other countries such as Argentina, it will be great news for the Argentine economy, but real bad news for USA farmers. So far, the US administration is trying to avoid consumer products in their tariff targets, the further this goes it seems inevitable that higher tariffs will hit US consumers in the pocket. 

With China imposing higher tariffs on USA wine, the New Zealand wine industry should benefit. So, there could be benefits for other countries, at the expense of USA agricultural exports.

The financial markets hate uncertainty. The process thus far is unsettling for markets. The further it goes the harder it gets to dismiss the US President’s tariff announcements as simply a negotiating strategy ahead of talks on investment flows and intellectual property.

The biggest problem for us here in New Zealand is Trump’s disregard for rules-based trade arrangements. As a small open exporting country, we rely heavily on the rules and the oversight by the World Trade Organisation (WTO) as the official arbiter of those rules. A breakdown of the rules risks our future prosperity. 

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.