Another day. Another sucker punch. And another guess about the dumbest investment you can make. USA Today:
President Donald Trump on Wednesday imposed 25% tariffs on imported automobiles, barreling forward with a whiplash economic strategy that has rattled markets and ignited a global trade war. Trump detailed the tariffs, which will start at 2.5% and rise to 25% on all foreign cars and light trucks, in front of reporters in the Oval Office.
Why the feds would want to make autos more expensive is hard to figure. Inscrutable. Implausible. Incomprehensible.
But not inconceivable.
Mr. Trump believes in tariffs the way prize fighters put their faith in their left jabs or right hooks. Everything is a fight. And the goal is to win.
He’s ready to duke it out with one and all. And now, Ontario, Canada, arguably our closest and dearest neighbor, has its fists up too. Reuters:
Ontario Premier vows to ‘inflict as much pain as possible’ on US over tariffs
Ontario Premier Doug Ford said on Wednesday (March 26) he aims to “inflict as much pain as possible” on American citizens as the U.S. and Canada engage in a trade dispute over tariffs.
But since we’re wondering what will turn out to be the dumbest investment you can make, let’s consider what the real causes and consequences of a trade war may be. America’s last trade war, led by Misters Smoot and Hawley, led to the Great Depression.
This time could be different. Mr. Trump is no average, run-of-the-mill protectionist. He’s a brawler, not an economist…nor a diplomat. He throws tariffs around like a prizefighter, not a statesman. Fortune:
Trump warns EU and Canada not to team up to resist tariffs—they must take the beating or worse will follow
President Trump is warning the EU and Canada not to get any ideas about joining forces to outmaneuver his upcoming tariff announcements, saying if they team up against the U.S. they will face consequences.
Next Wednesday is a day of reckoning for the Trump administration—and indeed for economies across the world. ‘Liberation Day’, as Trump has called it, will confirm further tariff action against a raft of countries.
The greatest country in the world conducts its affairs as if it were a Mixed Martial Arts cage combat. But is there a method to the madness? Probably not. But let us imagine that there is.
Perhaps the chaos is intended to drive investors out of the US…reduce the value of the dollar and thereby make US exports more competitive?
Would that make sense? Maybe.
In the long run, a weaker dollar could help US export industries. But in the near term, the combination of declining dollar purchasing power and tariffs on imports would surely pinch consumer spending, hard. MoneyTalksNews:
Economic Pessimism Hits 12-Year Low As Americans Brace for Uncertainty
The Conference Board reports consumer confidence has plummeted below recession warning levels for the second straight month. With 15.5% of Americans expecting lower incomes and inflation expectations rising to 6.2%, financial anxiety is growing nationwide.
Combined with already sinking consumer confidence — the result would likely be a slowdown in GDP, along with rising unemployment and a recession. A lower dollar would also make it harder to fund America’s expected $60 trillion worth of new and refinanced debt over the next 15 years.
How would all of that shake out? We don’t know. But a declining dollar would also mean a decline in the value of dollar assets. And the biggest dollar asset is also America’s biggest dollar liability.
It may be that some forward-thinking person on Team Trump believes he can score a two-fer…or a three-fer. Lowering the value of the dollar, in an imagined Mar-a-Lago Accord, would reduce imports, improve exports…and one other thing — lower the real value of US debt.
Bingo! A 20% cut in the dollar would lighten America’s debt load by nearly $8 trillion. Another 20% loss to inflation would bring the savings to $16 trillion.
There is a precedent for this sort of manipulation too. The Plaza Accord of 1985 — 30 years ago this September. Then, as now, the dollar was judged too high. The leading financial powers got together at the Plaza Hotel in New York and agreed to knock it down.
The effect was to put a rocket under Japanese asset prices…leading to the famous Japan Inc. bubble of the late ‘80s…thence to the crash in Japan of 1990…and to the 35-year bear market that followed.
But no matter. If the feds were to achieve the objective — a lower dollar — consumer prices would rise. Wage earners would lose jobs (at least in the short-run). Investors would lose money in stocks. But the biggest losers would probably be those who held US Treasurys.
Either way — because lack of spending control brings inflation…or because the feds want to lower the value of the dollar, intentionally — US Treasurys would come down. If both were to happen, which seems likely, 30-year Treasury bonds, now offering a paltry 4.68% yield, might turn out to be the dumbest investment you could make.
Regards,
 |
Bill Bonner,
For Fat Tail Daily
