Good afternoon everyone. In case you missed it, here's what happened in the markets this week: A long time ago in a country called the U.S.A...Trade Wars.
What is happening and how did we get here? On the evening of May 5th President Trump surprised the markets be sending out the following tweet…
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars....— Donald J. Trump (@realDonaldTrump) May 5, 2019
What’s important to remember is that tariffs are not a tax paid by foreign countries. Tariffs are a tax US businesses pay to the US government to import products from overseas. The reason these products are imported to begin with is because they can be found cheaper outside of our country. If U.S. companies have to start purchasing these products from companies at home it will lead to price increases. And if tariffs are paid for by U.S. businesses, the price increases are paid for by U.S. households. The cost to U.S. households from this newest round of tariffs is estimated to be $831 a year. That’s $831 less that families will have to spend annually. The decrease in value to all of the goods and services produced in the US is estimated to be $30 billion. This in and of itself would be enough to give any economist pause.
But the saga continues….
On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..— Donald J. Trump (@realDonaldTrump) May 30, 2019
Not to be outdone…by himself…President Trump sent out the above tweet yesterday evening.
What does this mean for the future of not only the United States-Mexico-Canada Agreement but the trade war with China? Joel Naroff of Naroff Economic Advisors said it best, “If having an agreement doesn’t stop the U.S. from imposing tariffs on a country’s goods, why have an agreement at all?” Watching this unfold is almost like watching a football game where the referees only enforce rules half of the time.
The big question is, can the U.S. afford to not only fight, but win a two front trade battle? And, what will the long-term cost to the U.S. economy be?
I wouldn’t be doing my job if I didn’t use this moment to highlight the benefits of having a diversified portfolio. Since the tariff increase announcement on March 5 the S&P 500 index has lost -5.32% while the 20+ Year US Treasury Bond Index is up +5.21%.
Marketwatch has more on this topic here.
Trade Wars got you down? Maybe spend some time with Star Wars instead. Opening today, Star Wars Galaxy’s Edge is the newest fully immersive franchise experience to hit Disneyland’s theme park. Wired has a great article on Disneyland’s newest attraction: Star Wars Galaxy’s Edge and the Art of World Building
Can make it out to California for the grand opening? That’s okay. Here’s a list of everything coming to Netflix in June.
Have a great weekend everyone. We’ll see you next week!
*These are the general views of Stanton Burns and they should not be construed as investment advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.