As we mentioned before in a previous blog about the subjects.of Tariffs and Trade wars, we reiterate the U.S. will not lose a trade war with China or anyone else!
What is a Tariff? A Tariff is a tax on products made abroad that are coming into our country. In theory, by taxing items coming in from other countries it means that the U.S. consumer will be less likely to buy that countries products because those goods will be more expensive. The alternative is that they will buy cheaper local products instead and it will in the end boost its countries own economy.
There’s no doubt that America’s manufacturers are still rebounding thanks to actions taken by the Trump administration. The tariffs that President Trump imposed on steel, aluminum, solar panels and washing machines have already created more than twelve thousand new jobs. The tariffs were imposed after probes by the US Commerce Department had declared that steel and aluminum imports are a big threat to Americas national security. President Trump finally took action on those reports and imposed even larger tariffs than what had been suggested by the Commerce Department.
In theory, by taxing foreign steel and aluminium it will mean US companies will buy local steel instead. These tariffs have been welcomed for the most part, by companies like U.S. Steel, AK Steel, Nucor, and Cleveland Cliffs . However, some aluminum producers like Century Aluminum that wholeheartedly supported the tariffs and some companies like Alcoa feel that the Trump administration ins't addressing the core issue of Chinese overcapacity and US automotive companies like Ford, General Motors and Tesla continue to be weary about the possibility of tariffs on the auto industry and automotive component imports.
But, U.S. car companies are doing fairly well. Ford’s North American operations recently posted a $2B in profits in the fourth quarter, while GM’s North American net income were topped by $3B. Even steel consumers like Caterpillar and United Tech have reported very strong results.
Despite all the positive results, condemners of the tariffs, widely among large retailers are claiming the tariffs will in the end lead to hefty price increases. But that’s not what’s happening now. Prices for new cars which contain plenty of steel products remain steady. And the price of aluminum like that used in canned goods are also rising at a lower rate than that of inflation. This means consumers simply aren’t seeing any major price increases from these tariffs thus far, and core inflation is remaining low just above 2 percent. This means Industrial users of steel and aluminum just aren't currently being affected by higher prices.
In fact, steel prices have actually fallen back to the levels where they were before the tariffs took effect. Also, federal data is showing that the Producer Price Index rose a cumulative 2.5 percent last year in 2018, at exactly the same rate as they did in 2017. These numbers are remaining strong, and it shows that the U.S. manufacturing industry has added plenty of jobs in the manufacturing sector since the last recession.
So what's with all the noise out there about the tariffs? Why aren’t the they causing all of the trouble that were predicted? It is because these manufacturers are simply capable of absorbing any cost increases that have resulted.
Lets face it - the U.S market. is the largest and most affluent in the world, China exporters would rather reduce its prices than lose access to U.S. consumers. Chinese producers are still able to earn huge profits on American sales, thanks to their low labor wages bout $3.50 an hour along with government-subsidized steel and aluminum.
Because their costs are much cheaper, Chinese producers have priced its products high enough to make large profits. But with the tariffs now in place, those margins are at last finally shrinking.
The end result of the tariffs is that the U.S. economy will be much better off. when consumers pay the same for many imported goods than exports and U.S. producers will enjoy a better competitive margins, and the U.S. Treasury will gain more income from tariff revenues.
Of course, there will always be the cronies who will condemn Trumps efforts in major publications by attacking the tariffs and delivering noise about the high prices that will ultimately deal lower profits to U.S. companies and they will continue to voice their concern for companies that had to pay more money for steel and aluminum last year in 2018. But what you need to remember is the end result of the tariff negotiations are intended to SAVE good paying jobs in America’s steel and aluminum sectors and savet these gigs have been under attack for YEARS by China's government-subsidized goods on Chinese steel and aluminum products.
The people in the Obama administration should have expressed concern for America’s workers 10 years ago, when China’s predatory behavior and outright technology theft became super apparent. After all, such cheating absolutely violates free markets and free trade. And it has taken a heavy toll on the U.S.economy.
That what is needed and Trump knows it is strong medicine such as these tariffs are simply a necessary recourse here and now. And as America’s manufacturing resurgence in 2018 demonstrates, it is working!
Now, President Trump needs follow through, with his threats of 25% tariffs on another $325 billion in goods like footwear and other sectors not yet subjected to tariffs. The time is now and It is a must that we once and for all curtail China’s cheating and spur more manufacturing job growth in America.
So as far as we are concerned the recent market volatility as of late is fine and ok! The way Bulls to Bears views it- it is short term pain for long term gain. We anticipate a truce at some point in the coming months and Yes this Tariff war with china is the necessary bitter medicine that was needed to fix Chinas unfair trading practices which has hurt our economy and jobs for many years.
We agree with Presdent Trump as he stated "We are, again, in a very, very strong position. They want to make a deal. It could absolutely happen. But, in the meantime, a lot of money is being made by the United States, and a lot of strength is being shown. This has never happened to China before.”
Continue to invest and stay strong and steady. Keep in mind: We believe victory is close at hand.
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As we previously mentioned, we embolden you to Join our FREE E-Newsletter and we will give you our trading perspective that will help you outperform the stock market and place better trades. Again, take advantage of our 14 Day FREE Trial and get 2 weeks worth of FREE trading signals on stocks that are poised to move higher.
Till Next Time... Happy Trading!
