Home About Archives RSS Feed

The Independent Investor: The Cost of MAGA

By Bill Schmick
iBerkshires columnist
It is the guiding principle behind the Trump administration, but to "Make America Great Again" the U.S. may have to break some eggs. Are you ready for that?
"MAGA" is much more than a marketing gimmick. Almost every day, we uncover additional evidence of how the President and his supporters in Congress are dismantling regulations, taxes, and on the foreign front, trade deals.
For example, while the president professes to have "a great relationship" with China and admires its president, Xi Jinping, at the same time, he is working behind the scenes to apply more pressure to our sometime-friend, sometime-nemesis.
This week we will have surely upset China when the House passed two bills that will make it easier for high-ranking Taiwanese officials to exchange visits with counterparts in the U.S. The second bill would promote Taiwan's participation in the World Health Organization.
Mainland China has long held a policy of "One China" (since 1949). The Communist government considers Taiwan a rebel province, which will one day be reunified with the mainland, even if that means applying military force. The U.S. actions this week threaten that stance and could invite some kind of retaliation from the mainland. Certainly China does not separate trade relations from geo-political concerns. To them, it is all one and the same. Therefore their response could be in the economic sphere or in the political realm (less pressure on North Korea).
On the trade front, many global trade economists believe that 2018 will be the year when Trump takes the gloves off when it comes to China. In December, Trump unveiled his national security plan and identified Russia and China as rivals that are attempting to erode American security and prosperity. He specifically accused Beijing of unfair trade practices.
There are plenty of areas ranging from steel to intellectual property where America has expressed their trade grievances. Politicians like to use the trade imbalance with China as justification (now about $309 billion in their favor) for additional tariffs on Chinese goods, but that line of discussion is too simple and  ignores the vast and tangled economic relationships we have with that country.
Our withdrawal from the TPP Southeast Asian trade agreement has also left us with less clout when negotiating with China. In many ways, we are now on our own, as opposed to being the lead player in a multi-country, Asian trading bloc, when dealing with the Chinese. In fact, China is trying to replace the U.S. in that particular trade group, which could strengthen their position and cause us even more difficulties.
As of today, we have yet to feel any real fallout from our MAGA moves, but they are coming. Just this week, the markets tumbled worldwide when an unnamed Chinese official intimated that China might slow down, or stop purchasing altogether, our U.S. Treasury bonds. The concern was understandable, since China is the largest foreign purchaser of our debt. Other officials quickly denied the statement, but it reveals how dependent global financial markets are on maintaining the status quo in world trade.
And it is not only China that we need to contend with. This week, according to some Canadian trade officials, the North American Free Trade Agreement (NAFTA) is reported to be on the rocks. If that is true, the implications would be huge. No one can predict what would happen as a result of the dissolution of NAFTA, but suffice it to say that it would not be good for the stock markets of Mexico, Canada or the U.S. The three currencies involved have already seen some wild gyrations. When long-standing trade deals change, dislocations should be expected. There will be winners and losers, some obvious but others may take years to discover.
An enormous number of companies on both sides of our borders would be impacted. Hundreds of thousands of jobs would also be affected in ways that analysts are only just beginning to study. The same downside (and upside) exists in our relationship with China and every other country where our MAGA policies will impact trade agreements.
Financial markets hate uncertainty. Financial markets at historical highs dislike uncertainty even more. Aside from backing out of the TPP and bowing out of the world's climate change initiative, nothing substantial has come out of the president's first year in regard to trade. That doesn't mean it won't. As 2018 gets going, be aware that there are trade risks out there that we are only beginning to comprehend. Let's hope the president gets it right.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield Council Approves New Water and Sewer Rates
North Adams Council Restores Fire, Police Chief Titles
Pittsfield Firefighters Donate Christmas Gifts to DCF
1Berkshire Annual Meeting Remembers Klefos, Looks to Year Ahead
North Adams Movieplex Holds 'Five For Free' Food Drive
BHS Expands Rheumatology Services With New Doctor
What Is Smarter: Paying Off Debts or Investing?
Tyer Meets With Herberg's Future Leaders
Pittsfield to Continue With Wastewater Treatment Project Plan
North Adams Council Approves Tax Incentive for Tog Manufacturing

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.




@theMarket (275)
Independent Investor (376)
December 2018 (1)
December 2017 (5)
November 2018 (9)
October 2018 (5)
September 2018 (4)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
Stimulus Wall Street Federal Reserve Greece Oil Taxes Euro Stock Market Metals Markets Debt Election Europe Recession Energy Pullback Housing Commodities Jobs Debt Ceiling Currency Bailout Interest Rates Crisis Retirement Banks Stocks Japan Deficit Economy Rally Selloff Fiscal Cliff Congress Europe
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will Our Country's Military Win the Next War?
@theMarket: Markets Hope for Trade Breakthrough
The Independent Investor: Sustainability Investing and Millennials
@theMarket: It Is a Black Friday on Wall Street
The Independent Investor: The Origin of Black Friday
@theMarket: Markets Need to Hold Here
The Independent Investor: The Apple of Our Eyes
@theMarket: Stocks Take a Breather
The Independent Investor: Mid-Term Results Take Investor Focus Off Washington
The Independent Investor: Time to Check Your Risk Tolerance