These are unprecedented times. The last time I wrote these words was the beginning of COVID, and the situation was life and death. I did not think I would be writing similar words so soon. It just goes to show that market cycles are shrinking.
The current situation it's not as dire as COVID. But the scenario is pretty grim. We are seeing a change of guard in global economics that has been around for many decades, even before some of us were born.
Trump seems determined to push the US into recession and take the entire world along for the ride. The US is about 26% of the global GDP, and a contraction or recession in it is bad news for everyone. Add to it the complete change in supply chains that may be needed or planned.
Take the case of NIKE, which has a huge manufacturing setup in Vietnam. They can't suddenly relocate their plants to the US. So, what will happen? NIKE shoes will get expensive for Americans or they will buy less number of shoes. Same for Apple. Same for pretty much all US companies. Supply chains built up over decades cannot be replaced overnight. Also, we need to remember why it was moved away from the US in the first place. Today, the Chinese are competing with the Americans in high tech, cars, AI - all areas US thought they were miles ahead. Will tariffs change that?
Secondly, does the US have the people or the skills to get back all or most of the manufacturing? In an Wall Street Journal opinion piece, Allysia Finley, wrote “Forty percent of small business owners in March reported job openings they couldn’t fill, with larger shares in construction (56%), transportation (53%) and manufacturing (47%), according to last week’s National Federation of Independent Business survey. The Labor Department’s Job Openings and Labor Turnover Survey of businesses tells a similar story. There are twice as many job openings in manufacturing than in the mid-2000s as a share of employment.”
Can the manufacturing reshoring be done in a few years before the Americans start rebelling against high prices? How will that impact the mid-term elections or the next Presidential elections? Will Trump change course midway? Will bilateral trade treaties be the next wave forward?
China has grown in the last few years from being a pushover. Can China retaliate? Will it retaliate meaningfully? Or will it resort to weakening its currency to offset the tariffs like it did last time around? What happens if China stops exports? Can it survive internally with no jobs? Will it face a rebellion? Or can they pivot to the local economy? Is there enough buying power there?
What about the others? Europeans, Indians, Japanese, Saudis, Russians? Will everyone take everything lying down? Or will countries start making groups of their own and new formations of allies will emerge?
The challenge is that these are all questions with no clear answers. And the markets can get butchered while searching for these answers.
It's time to take a step slightly away, be in partial cash and observe from the sidelines.
I envisage a few weeks, maybe months, of continued policy flip-flops and uncertainty. But once the dust settles down, there will once more be opportunities for wealth creation.
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The Tariffs are inane. Interestingly enough, although Republicans were loathe to criticize Trump for his desecration of our democrazy and embrace of Putin, quite a few republicans have spoken up against tariffs. This proves that the Republican Party believes in only one thing: The personal self aggrandizement of very rich and privileged parasites.
https://davidgottfried.substack.com/p/the-dirty-little-secret-ideology