The world is on the cusp of globalisation on a scale that’d make Milton Friedman blush. I’m talking freer trade than Hong Kong’s Sir John James Cowperthwaite would’ve endorsed. A global economic boom the likes of which Singapore’s Lee Kuan Yew couldn’t have imagined.
This might sound a bit odd. Especially while politicians are urging you to panic about a Great Depression style trade war.
Which is odd in and of itself. I mean, it takes two to tango. If political leaders want to avoid a trade war, all they need to do is not fight back against Trump…
That’s what they’re demanding the US continue to do, after all. Sit there and take EU and Chinese tariffs on the chin each year without retaliating.
Unfortunately for the world’s protectionists, Trump has had enough of that. He’s giving them a dose of their own tariff medicine. And they don’t seem to like it very much.
Ironically, every retaliatory tariff the rest of the world announces on the US exposes political leaders as hypocrites. They’re only behaving like Trump after berating him for doing it. They’re causing the very trade war they’re railing against. And doing it in the precise way they’re criticising Trump for – retaliatory tariffs.
But why has Trump decided to give protectionists a taste of their own medicine? What’s he trying to achieve?
That’s what everyone has got so terribly wrong.
A geopolitical head fake
Who said this at the G7 in 2018?
‘You want a tariff-free, you want no barriers, and you want no subsidies, because you have some cases where countries are subsidising industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing.’
No, it wasn’t Milton Friedman’s ghost. Nor Anthony Albanese or the EU’s unelected leader Ursula von der Leyen.
President Trump said it…
Yes, Tariff Trump is actually Free-Trader Trump. A globalist of the first order. He’s in favour of globalisation on a scale other world leaders wouldn’t dream of: complete free trade. And he isn’t even hiding it.
Unfortunately, as The Australian Financial Review reported, ‘President Donald Trump’s unexpected call to remove all trade barriers didn’t gain much traction with other Group of Seven leaders.’
I wonder if they might be regretting that now…?
Nobody likes a hypocrite
Trump’s tariffs have turned the world’s most ardent protectionists into free marketeers. Even the EU, which is literally a protectionist bloc that came into existence with the purpose of being a protectionist bloc, now claims tariffs are bad!
So, what’s really going on here?
Well, Trump has a habit of getting his way by using reverse psychology. He gives his political enemies a dose of their own ideological medicine. And watches them adopt his own policy proposals.
Consider some examples to see how similar the current setup might be…
Trump demanded the Europeans increase defence spending. They ignored him. So he threatened to pull out of NATO. Nothing like cutting defence to make the Europeans see the sense of spending more on it!
Sure enough, now the EU is pitching their truly vast defence spending plans as an act of defiance against Trump… despite doing precisely what he originally demanded.
Trump also demanded the Europeans cut their reliance on Russian gas. He was ridiculed. Now that he’s accused of being Putin’s lackey, the Europeans are cutting Russian gas and buying expensive US LNG instead.
He played them like a fiddle.
Trump has used the same tactic to position the Democrats as the pro-war party over Ukraine, and the party of government waste and fraud back home.
In each case, this successfully engineered a dramatic policy reversal. Democrats used to be pro-peace, pro-tariff and anti-government waste.
The point is, Trump need only take a stand to ensure the entire world stands against him. So, if he wants to cut tariffs in the way he admitted in 2018, how do you think he should go about it?
Should he demand everyone cuts tariffs? Or should he start a global trade war?
We are simply seeing the same reverse psychology game on trade that has worked so well for Trump in the past on so many other issues. Trump is trying to crush trade barriers around the world and usher in a period of free trade. Just as he openly demanded in 2018.
Of course, nobody listened when he demanded it. But now that he’s declaring the opposite intention, suddenly everyone is a free-trader…
Having staked out their position as anti-tariff, world leaders now face a simple choice. They can escalate a trade war by imposing their own tariffs, or they negotiate mutual tariff cuts.
They can’t criticise Trump’s tariffs and keep their own. They’d look like fools. And nobody likes a hypocrite.
Who has the cards?
The higher Trump bids his tariffs, the more likely the world gives in to the deal. It’s like bringing ever more chips to the poker table, until you win. And Trump is in charge of the biggest consumer economy. He has the most chips.
As longs as everyone believes Trump is stupid enough to actually impose the tariffs, the strategy goes well.
Hence Trump’s painfully stupid comments. I still haven’t watched a single speech he’s ever given. It’s just too excruciating.
But if you watch what he does instead of what he says, you begin to see a pattern.
Apart from China’s reaction to Trump’s games, which we predicted would be very bad for specific historical reasons, the signs so far are good. Countries are reportedly desperate to negotiate tariff cuts from the US. And are likely willing to cut their own tariffs on US goods to seal the deal. The EU is keen for a ‘zero-for-zero’ tariff deal, for example.
Why are countries coming to the table so quickly? Because no nation can afford to be locked out of the US consumer market. It’s one of the few developed countries with growth in the short term and escaping demographic decline in the long term.
And half the nation’s Trump is targeting for trade barrier cuts rely on the US for their national security…
Just as nobody expected an unusually peaceful geopolitical period under President Trump in 2016, nobody is expecting a bout of free trade today. But Trump crossed the line into North Korea, kept Putin at bay and the Middle East went strangely quiet under his watchful eye…and bizarre threats.
How? By being unpredictable and harnessing Trump Derangement Syndrome to position his enemies where he wanted them.
So, we could be on the cusp of the greatest boom in free trade in history . A complete unlocking of borders and trade flows. No more tariffs, subsidies or other dodgy and unfair trade practices.
Trump’s policy could work beautifully simply by making it look like he wants the opposite…
Great theory, but is any of it true?
Of course, all this is just one theory for what’s going on. I’m only half convinced myself.
But it’s a far more plausible explanation for what’s going on than most would care to admit. Especially after months of bashing Trump no matter what he did.
And that’s the point, really. When you can do no right, you can position your opponents right where you want them.
All this suggests the market turmoil is a huge buying opportunity. Geopolitical manoeuvring has created a temporary blip. The face-ripping rally of Thursday is a taste of what’s to come.
The only question is how bad things have to get for the world to give in to Trump. How much chaos does it take for the EU and China to lower their trade barriers?
And how low will those barriers really go if Trump “wins”? Are we really on the cusp of much freer trade?
The US has cracked a nut like this before, by the way. The Americans forced the Japanese and Koreans to cut their unfair trade barriers and open their domestic markets in the 70s and 80s.
Heck, Trump hired the people who did it to join his team for the current battle…
So, why are we surprised by what he’s really up to?
Regards,
 |
Nick Hubble,
Editor, Strategic Intelligence Australia
P.S: Our team here at Fat Tail is now actively on-the-scout for buying opportunities in bombed-out stocks. Especially US stocks. This is our primary recommendation.
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