Trump Holds Firm on a Trade War, Let’s Hope it Gets Derailed.

Aside from Wilbur Ross and Peter Navarro, almost everyone disagrees with Trump’s new steel and aluminum tariffs. Even Paul Ryan today admits he is very worried. And worried he should be. 

I promised last post to outline why I think these tariffs may very well pose a real hazard to the market and the value of our trading and investing accounts.  

The corporate tax cut has predictably accelerated the economy. The problem is we didn’t need the stimulus right not. Stimulus should be saved for recessions. But, the reality is that the tax cuts have passed and been signed. No going back. 

Predictably, the tax cuts have ballooned the deficit. Trillion and a half, more or less. No problem, say its proponents. Accelerated growth of the GDP will take care of it, and in the meantime, interest rates remain low.  

But now with these tariffs there is real concern that growth could stall because input costs could rise. If input costs rise then finished products cost more. Voila, inflation! 

Inflation could hinder the growth of the GDP and inflation could force the Federal Reserve to raise interest rates more quickly. If this happens then our ever-widening deficit could become much more expensive to finance. Voila, recession! 

I think this line of reasoning is why the market took a knee jerk swoon when Trump announced these tariffs. Should they become enacted against the wishes of everyone but Trump, Ross, Navarro and every steel and aluminum CEO, we might see a repeat.  

I’m holding out hope that someone can talk him out of it, but I keep coming back to this quote by the Existentialist, Ralph Waldo Emerson: 

“A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall.” 

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