Weekend July 7, 2018
Trade Wars are a Negative Sum Game
Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy
Minutes from the FED Open Market Committee June Meeting, comments from Presidents of the 12 FED Districts
Today China and the US slap tariffs on some $34 billion of each others exports. As we have remarked in numerous columns this year, Trump and his trade advisors act as thought the other side has no alternative to our raising tariffs. But as Chinese President for Life Xi Jinping puts it, “Get ready for a full bore trade war.”
Meanwhile Trump instructs Trade Prep Robert Lighthizer to find a national security rationale to put 20% tariffs on auto imports. This is occurring as Ford announces it will only make two brands of cars in the future, preferring to make trucks and SUVs. Even GM opposes a 20% tariff noting it will interfere with the supply chain of imported parts.
As noted in a previous column, the Great Depression of the 1930s, fueled by the Smoot Hawley tariffs, finally ended in 1947 with the General Agreement on Tariffs and Trade GATT. This created the World Trade Organization WTO. Now the seven member appellate body is down to four and will be down to one by the end of 2019 thanks to the US not replacing jurists as terms expire.
The real problem is the demand by China that firms wanting to import goods ‘share their technology with the Chinese. But such a demand is counter to WTO regulations.
This is part of Made in China 2025 which plans on China being a tech powerhouse. The war needs to be with China, not the EU. The EU is notorious for taking years to settle such disputes. As it is America exports some 481,00 American made German cars. Tariffs against China will likely bring Chinese tariffs of American produced cars. This could cause lay offs of Americans at German firms. And further tariffs against foreign cars will surely affect Americans working at foreign owned car dealerships, ie Honda, Nissan, Toyota, et al.
Stock markets have continued sideways since their top in late January. But no real progress is being made to the upside.
Energy Update
Innergex Renewable Energy will build a 250 megawatt solar farm in Winkler County (Kermit). It will cost nearly $400 M and be completed by third quarter 2019.
VW’s all electric 671 bhp racer set a new record in the Pike’s Peak hill climb this year of seven minutes 557.148 seconds, shaving 17 seconds off the last gasoline powered effort.
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