In this case the end could justify the means; it all depends on if the tariffs and confrontational approach with China leads to a more equitable trading relationship. It may be that the end result is less trade. The tariffs are already incentivizing changes in supply chains and where things are made. That trend may accelerate; especially if additional tariffs are applied.
The United States could be the preferred destination for more manufacturing. After all, our corporate tax rates are among the lowest in the world. Modern manufacturing is highly automated so stark differences in wage rates are not nearly as important to the final cost.
In fact, with savings in transportation, the access to technical expertise, the safety of operating in an environment governed by the rule of law, and the ability to easily move capital and earnings makes the U.S. very competitive.
There certainly is a cost. Tariffs are a tax; either on the consumer or on the profits of business through lower margins. However, this fight with China is necessary and one in which we need to win. Getting a good agreement would be helpful, but if not, trading less with China may end up being a good outcome for us. Investors are never comfortable with this kind of uncertainty. A lot of shifts are taking place quickly. That is why there’s a sudden increase in stock market volatility.
America will win. Stay steady, my friends.
The Lonely Bull