This week, our fearless leader upped the ante on the tariff tiff with China. It went like this: Trump announced his list. China announced theirs. And at the end of the week, the president sees them one better. Aside from the volatility, it is causing in the stock markets, not much besides headlines has been accomplished.

 

Are you seeing the pattern yet? Think back to Trump's schoolyard diplomacy with Kim Jong-un, the leader of North Korea. First, a furious exchange of tweets and name-calling between the two. That was followed by saber-rattling on both sides. More test missiles. Naval ships steaming toward the Peninsula. The media spent days explaining the "what ifs" while stocks went up and down. 

 

In the end, the two neighborhood bullies now appear willing to play nice and meet at the end of the month. I fully expect our president to come out of the meeting extolling "Fatty the Third" as his newest and dearest best friend.

 

Now compare that to the tariff turmoil. Tweets, counter tweets, threats, etc. are flying this way and that; but so far, it's all smoke and mirrors. Investors here in the U.S. are still reacting like puppets on a string, but elsewhere governments and stock markets are disengaging from these Trump tactics.

 

Take Thursday night's announcement. Trump ordered his trade rep, Robert Lighthizer, to "consider" an additional $100 billion in trade tariffs against China. By the time he does all that studying, a few months will have passed. In the meantime, things change and there is no guarantee that any recommendations will ever see the light of day.

 

However, like the puppets we have become, Thursday night's futures market for the Dow Jones Industrial Average fell by over 500 points. Corresponding drops in our other indexes also occurred. But here is where foreign investors parted ways with our traders. Japan's stock market traded up slightly at first and then dropped by a small amount at the end of the day. Some markets, such as Hong Kong and India, finished higher. By the time we opened for business on Friday morning, the losses in our own averages were pared back by more than half.

 

Like a dog whose bark is worse than its bite, global investors and governments are beginning to realize that what comes out of the Twitter-in-Chief's mouth (or his Twitter account) is neither policy nor necessarily even the truth. As such, investors would be well advised to ignore his pronouncements. Granted, that's hard to do because the president will go to great lengths to stay in the center of the spotlight, no matter what he needs to say or do to accomplish that goal.

 

Nonetheless, do not act on his statements. Next week, earnings season begins, and analysts expect good things from Corporate America. Wages continue to gain (2.7 percent on an annual basis), according to the latest non-farm payroll report, although the number of jobs gained (103,000) was 90,000 short of expectations.  From a macroeconomic point of view, things look good and are gaining momentum.

 

As for the markets, I expect volatility will continue. Right now, the S&P 500 Index is caught in a 100-point trading range and will probably not break out of it until the middle of April at the earliest. Cushioning the market somewhat, as I expected, is the tax cut. U.S. dividends increased in the first quarter to a record high. Corporate buy backs are also recording the same kind of gains, as most corporations reward their investors by passing along their tax savings, rather than investing them in jobs or capital spending (as the legislation's authors promised). That makes owning stocks a good bet for the future.

In today's world, talk of tariffs is part of daily news headlines. Politicians use terms like "free" and "fair" almost interchangeably in discussing trade to justify their position for or against tariffs. Maybe it's time to review the difference between the two concepts.

 

While they may sound similar, free trade and fair trade are often at opposite ends of the pole. Free trade is a world where the gloves are off. It allows international cut-throat competition where the marketplace can drive the cost of products way below the price where anyone can make any money. Free trade makes things cheaper including the money we earn to produce those goods.

 

Fair trade, on the other hand, is in the eye of the beholder. What may seem fair to you or me, maybe the opposite from someone else's point of view. That's because fair trade places all kinds of restrictions on producers of goods and services. Overall, fair trade tends to make goods more expensive. That's because it costs more money to guarantee a minimum wage or make sure that a coal mine or steel mill's working conditions are safe.

 

However, throughout history and into the present day, both concepts are abused quite often. Take our country's attitude toward trade. After World War II, for example, North America was the only continent left standing. Europe, Asia and everywhere in-between had been decimated by warfare. Our allies needed help and free trade seemed to be the best answer to rebuilding the world in the shortest time possible.

 

It was the age of Japanese transistor radios, cheap autos from Europe, and U.S. industrial and food products that could be purchased with extremely easy terms. America opened its arms to anything the world could export to us. The purpose was to rebuild and increase economic growth worldwide for both the winners and the losers. All we required was an adherence to democracy.

 

We accepted free trade, while allowing our partners to re-build on the foundation of fair trade. The purpose was to allow agriculture, industrial production, and the consumer to recover in war-torn regions. We deliberately looked the other way as countries like France, Germany or Japan set tariffs on our cheap imports to protect their own struggling dairy or textile businesses.

 

Over the years, we all got used to this kind of lopsided arrangement. After all, America was the leading economic power in the world by a wide margin. We could afford to carry the world's weight on our shoulders.

 

Fast forward to today. Yes, we are still No. 1, but China is a close second. Europe over the past 50 years has forged their own powerful economic union and yet some of our trade deals have failed to keep up with these changing economic circumstances. Part of that problem, I believe, has been the U.S. practice over the past several decades of exchanging economic benefits for geopolitical influence.

 

How many times in the past have we given massive amounts of foreign aid in the form of trade deals, or gone along with outrageous tariffs on American imports just to achieve some dictator's promise to forsake communism or socialism and follow our brand of democracy? Clearly there is, and has been, a long list of unfair trade practices by just about every country in the world, including our own. I do not believe free trade exists in the world today. But recognizing that our steel and aluminum industry may need some relief from some other country's dumping practices is not the end of the world.

 

It appears to me that the present turmoil in the financial markets simply reflects something new and different and to some, a therefore dangerous turn of events. Because it has been so long since our country has stood up for itself in the trade arena, those invested in the status quo fear any change at all — even if it is to our benefit.

 

I commend the president for addressing this issue. Could he have found a better way to do it? Sure, but then again, I'm not the person sitting in the hot seat. Getting a better deal at the trade table is long overdue for this country, even if in the short-term, it might upset a few apples in the cart.

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.