Trump’s ‘reciprocal tariffs’ are a con –

and investors are now waking up to his bigger ambitions

Everyone is quite quiet lately? Could it be the increased hostilities in the middle east? Israel and the US turning up the heat on Iran? Russia advancing in Ukraine while US bellicosity towards Russia escalates?

‘Russia has to get moving. Too many people ere DYING, thousands a week, in a terrible and senseless war –
He told NBC News he was ‘very angry’ with Putin after weeks of attempting to negotiate a ceasefire.
Trump has spoken of imposing secondary sanctions on countries that buy Russian oil if he feels Moscow is dragging its feet on a Ukrainian deal.

Or how about watching retirement savings disappearing? Understanding all pension plans personal and otherwise, including CPP (Canada Pension Plan), are being negatively affected by this instability?

On a side note-we’re a couple of years away from retiring, this doesn’t inspire confidence for our “golden years”

While acknowledging my understanding of all these financial machinations is certainly limited. I’ve been reading and posting different articles here. Well, I got another one. I read this three times, including once to my husband because the author really explained, very well, the numerous problems with this economic warfare the US has initiated. Including in the way this has all been presented to a mainstream audience.

A limited excerpt is included below the links, but, the entire piece can be read at the archive link below

Link to Globe and Mail and Archive.ph

David Rosenberg- Special to the Globe and Mail

There is now certainty that this White House trade strategy is both nonsensical and unachievable. Look, we can all accept that China is a menace and a huge cheater, but it would be preferable if the White House specifically dealt with Xi Jinping. One can certainly make the case that Mexico was the big winner from the NAFTA sucking sound (not Canada). But when President Trump states that the trade plan is “our declaration of economic independence,” what he is, in effect, saying is that he wants America to be “independent” – or “liberated” – from bilateral deficits with all countries running such gaps against the U.S.

As a result, just about any country in the world that runs trade surpluses with the United States just faced a brutal and unanticipated assault in terms of magnitude – 57 in total (with a range of 1 per cent to 40 per cent of penalties layered on top of the 10 per cent baseline move – amazingly, Russia and North Korea were not on the hit list). While I don’t like to label this a “tariff” rate (I define what this is below), it basically amounts to 22 per cent, and that takes out Smoot-Hawley in 1930 and is the highest since 1910 (a big shock from 2.5 per cent before this current trade war was launched).

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President Trump said he loved that word “reciprocal” when he spoke at the Rose Garden on Wednesday and even took the time to define it for us. But let’s look at the numbers. What is reciprocal about imposing a “tariff” of 10 per cent on the U.K. (as an example) when it has a tariff rate of 0.7 per cent on imports of U.S. goods? That is what we should be asking ourselves. Or a 10 per cent tariff now imposed on Australia when it has no tariffs at all on imports of U.S. merchandise.

How is that reciprocal? Reciprocal would mean a 3.9 per cent tariff on Korea, not 25 per cent. It would mean a 3.9 per cent tariff on Japan, not 24 per cent. India got slapped with a 26 per cent tariff even though its tariff rate on the U.S. is 5.5 per cent. What is with Vietnam being hit with a 46 per cent “tariff” when its comparable on U.S. products is … wait for it … 2.9 per cent (in a $30 trillion U.S. economy, Vietnam runs the grand total of a $123-billion trade surplus with the U.S.)? Thailand charges a 6.2 per cent tariff rate, and the U.S. just slammed it with a 36 per cent punitive “tariff.”

So, I must make this very clear. These are not really “tariffs” that are being imposed.These are actions aimed at completely eliminating the U.S. bilateral trade deficit with every country. That is why the “tariff” is really not that at all but rather a “ratio” of every country’s trade surplus with the U.S. divided by the exports of that country

they are ratios that are intended to cause trade deficits to go away entirely (depending on the elasticities). What that means is that every country can drop its tariff rate to zero, and it won’t matter because that will not cause the bilateral trade gaps to disappear –

And the question is, why? Because the president and his team believe that trade deficits are “subsidies,” pure and simple. And that, my friends, is patently absurd.

Again, to be clear, what the White House just unveiled are NOT “reciprocal” tariffs by a long shot. They are rooted in a misapprehension that trade deficits are “subsidies” (which the president keeps referencing when he talks about Canada). Which they are NOT.

I’ve actually come across people saying the US subsidizes Canada, as if they are bestowing charity on Canada- nothing could be further from the truth- Even this (me) financial neophyte understands this!

Why does the U.S. run trade deficits with so many countries, and why is it natural?

The United States is the largest and richest economy on the planet. This is all about the laws of large and small numbers. For small countries, it is next to impossible for them to import all that much given their smaller populations and GDP bases. For many countries, what they export to the U.S. may be big in relation to their economies but very small relative to the size of the U.S. market. The math just doesn’t work. There is no way they will be able to boost their imports sufficiently to cause a balance in bilateral trade.

Canada has about 1/10th of the population of the US, we cannot import from them like they can from us. Plus they consume vast quantities of our energy resources-

But more importantly, given the relative size of the U.S. to many other countries, it makes zero sense to expect anything but deficits with these nations. In other words, the law of large and small numbers here is going to make it next to impossible for every bilateral deficit to banish. A wholly unrealistic expectation.

The U.S. economy is built on consumerism. And there is a huge correlation between consumer spending and imports. No national sales tax and a system that encourages an extremely low personal savings rate. The rest of the world has no such culture and runs much higher savings rates.

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Please read the linked article entirely. There is so much more information to absorb. Below is the last little bit that will be included here.

The U.S. dollar is the reserve currency of the world. It is perfectly normal for the reserve currency country to be running current account deficits with other countries. Why? Because the status of trust and stability that comes with being the reserve currency leads to capital account surpluses. And these surpluses, because of the wealth and income streams they cause, flow through into a current account deficit via the import channel. The capital account drives the current account and, by definition, the balance-of-payments must balance. This, you never hear about despite the fact that it is an incontrovertible fact that the balance-of-payments must always balance.

As always, share some thoughts.