Tariff Discussion

I have profound respect for Warren Buffett and I embrace the idea that he is unequivocally correct on the top of tariffs. But....

While I believe tariffs are always bad, I try to consider the idea that massive trade imbalance, combined with withering national capabilities may be worse. I embrace the idea that American may be well served by rebalancing trade. Nobody wants to take this bitter medicine. There are always reasons given why the medicine should be taken later but problems are always easier to deal with sooner, rather than later.

Let's stop walking on egg shells about politics. If you like Trump, that does not make everything he does correct. If you hate Trump, that doesn't make everything he does wrong. As investors, we should strive to be as objective as possible and model likely scenarios of what is going to happen, good or bad, and consider our behavior based on that. Being blinded by what we want to happen is a disability for an investor.

Short term: I have no idea what's going to happen

Long term: I doubt the US will be hurt all that much by these tariffs. I also expect these tariffs will be gone with perhaps a tiny amount of tariff residue left for us to argue about.

Consider this: If industrial dominance continues to skew to China, how will that effect the future of America? I predict it won't go all that well. If the skew can be slowed, things will still go badly but not quite as badly as they would have.

 

Trump's April tariff revenue topped $17 billion. That dwarfs any haul from his first term.

https://finance.yahoo.com/news/trum...s-any-haul-from-his-first-term-160856118.html

 

My view.....this tariff "stuff" will be forgotten well before the end of the year. it will have little to no impact on us as a country and is simply a NEGOTIATION. As to China and the WTO....they have been blatantly cheating and screwing the world ever since they were......stupidly...allowed to join.

My prediction...in the end it will be a HUGE win for our country and actually for the world as countries move slightly toward.....free trade. There are actually very few countries that allow many of our products to be sold.......like INDIA with TSLA.....they basically BAN our products with MASSIVE TARIFFS....of 100% or more.

YES.....they are protecting their country and their manufacturers......and we have every right and should do the same. Is is a rigged...one sided game.....that we have allowed to happen for far too long. Japan, India, China, etc, etc, etc.

 

I totally agree with the content below......this is MY world view of china and the incompetent and enabling WTO:

FROM THE ECONOMIC TIMES....published in INDIA

https://economictimes.indiatimes.co...f-to-blame/articleshow/120092413.cms?from=mdr

(BOLD is TOTALLY my opinion)

"Staring at US President Donald Trump's latest threat of a combined 104% tariffs, China has taken a high ground. China said Tuesday it would “fight to the end” and take countermeasures against the US to safeguard its own interests after Trump threatened an additional 50% tariff on Chinese imports. Trump wants China to withdraw 34% tariffs it imposed on the US in retaliation to the 34% reciprocal tariffs Trump imposed on it last week.

If Trump implements his new taxes on imports from China, US tariffs on Chinese goods would reach a combined 104%. The new taxes would be on top of the 20% tariffs announced as punishment for fentanyl trafficking and his separate 34% tariffs announced last week. China has called Trump's imposition of “so-called ‘reciprocal tariffs’” on China is “completely groundless and is a typical unilateral bullying practice".

China filed a formal complaint against the new US tariffs with the World Trade Organization (WTO) on Friday, saying the measures violate WTO rules and requesting consultations. Ironically, China can only blame itself for attracting rough treatment from Trump as it has exploited its WTO entry nearly a quarter-century back to strengthen its economy at the cost of other countries by refusing to play by the rules.

Union Commerce Minister Piyush Goyal said yesterday China’s economic ascent was built on "unfair trade practices", hidden subsidies, and distorted labour models, ignored by much of the world since Beijing joined the WTO in 2001.

“This growth was fuelled by unfair trade practices. This growth happened at the cost of fair play,” Goyal told the India Global Forum in Mumbai. “Its foundation lay in actions which, by the rules of the game, would be considered improper.” He said China’s rise had come “at the cost of national economies and the manufacturing ecosystem” in many countries—including India. The current trade standoff, he argued, is not a flashpoint but the result of years of myopia by the international community.
“The current state of play, in some way, is a culmination of almost three decades of this attack on several economies,” he said.

How China exploited West's WTO overture

China joined WTO in 2001 under the West's plan to play it off against Russia and its hope that China would shun its authoritarian mindset and assimilate in the free world. It was expected at that time that China would liberalise its communist economy and transform itself into a transparent market economy. But that didn't happen. Instead, it used its state-controlled economy and businesses to flourish at the cost of open economies. President Xi Jinping took this strategy to another level to
achieve global dominance.

China sought WTO membership to gain access to new trading partners and better trade terms, aiming to boost economic growth and improve living standards. It hoped to consolidate and accelerate its market-oriented reforms, moving towards a more open and integrated economy. WTO membership was seen as a way to secure further foreign direct investment, access to foreign technology and foreign markets, all crucial for economic development.

Many in the West hoped that China's WTO entry would lead to a fully fledged neoliberal economy, with capitalist property rights and rule of law, rather than communist laws. But now there are growing concerns over China's state-led economy and its power to put foreign competitors at a disadvantage through practices like state subsidies, cheap labour and forced technology transfer.

China's economy experienced significant growth in the years following its WTO accession. It liberalized its service sector, allowed foreign investment, and ended restrictions on retail, wholesale, and distribution. While integrating into the global economy, China maintained strict controls on its financial markets, including interest rates, capital movement, and the value of its currency. While getting unfettered access to markets in other countries, it protected its market from free inflow of foreign goods.

Leveraging its WTO entry to become a major player in global trade, China pursued export-led growth and benefitted greatly from increased access to foreign markets. However, China did not fully comply with its WTO commitments, particularly regarding intellectual property rights, transparency, and state-owned enterprises.

China retains state control over key industries and often intervenes to support them which puts competing industries and businesses in other countries at a disadvantage. The government's administrative involvement in the economy is pervasive, including public property rights and supervision of senior managers by the Chinese Communist Party (CCP) in key industries. China uses various non-tariff barriers, such as stringent regulations and licensing requirements, to protect domestic industries.
For instance, it does not allow Google or YouTube to operate within the country.

China's private companies doing business in other countries are seen as arms of the state and have also been accused of working to advance the interest of the Chinese state in other countries such as through spying or theft of critical technology. China's economic planners often prioritize industrial output and assume that Chinese producers can always offload excess supply in the global market, potentially leading to overinvestment in certain sectors.

While releasing its Annual Report on China’s WTO Compliance in January, the Office of the United States Trade Representative said, “China continues to represent the biggest challenge to the international trading system. After 23 years of membership in the World Trade Organization, China still embraces a state-directed, non-market approach to the economy and trade, which runs counter to the norms and principles embodied in the WTO.”

"The vast majority of the harm that China inflicts upon other WTO Members is attributable to the daily and compounding impact of China’s state-led, non-market approach to the economy and trade, which relies heavily on significant interventions in the market by the Chinese government and, increasingly, the Chinese Communist Party (CCP or the Party)," the report said. "As is well-documented, the Chinese government and the CCP routinely intervene in the market in a predatory manner using a wide
array of non-market policies and practices, both to provide substantial artificial competitive advantages to targeted Chinese industries and enterprises and to actively disadvantage foreign industries and enterprises and their workers."

"These non-market policies and practices include not only massive and pervasive – and often non-transparent – subsidization, which is extremely large both in terms of absolute value and in relation to the size of the targeted industry, but also numerous other unfair policies and practices," the report said. "Key examples include market access limitations, investment restrictions, forced or pressured technology transfer including state-sponsored theft of intellectual property, preferential
treatment for state-owned enterprises and other favored Chinese companies, discriminatory regulation, unique national standards, data restrictions, inadequate protection and enforcement of intellectual property rights, the use of competition law enforcement for industrial policy purposes, and unfair labor practices, including forced labor."

What WTO says about China

A 173-page assessment published last year by WTO as part of China's trade policy review -- a process that all of the organisation's 166 members undergo every few years -- found that China's industrial support programmes lack transparency. The WTO said it was unable to get a clear picture of China's financial support for key industrial sectors, such as electric vehicles or aluminium and steel production due to an "overall lack of transparency".

The WTO noted that the world's second-largest economy gave financial support and other incentives to industries over the 2021-2024 review period but said that Beijing did not provide enough information for the WTO to have a clear picture of the programmes.

The overall lack of transparency on China's government support may also contribute to debates on what is perceived by some as overcapacity in certain sectors," the WTO report said, naming a range of sectors from semiconductors to shipbuilding.
The WTO noted in particular that it could not determine the size of Chinese government funds that it said were using public resources to make equity investments in key industries.

Several Western countries including the US, Australia, Britain and the European Union used the occasion to criticise China's industrial policies. In a scathing speech, Washington accused Beijing of "predatory" industrial practices that harm other countries, saying the "full weight of the PRC state is deployed in support of this goal of domination".

In a document submitted to the WTO as part of the review process, Beijing said that it complied with both WTO rules and the commitments it agreed to when it joined the body in 2001. It added that it was open to talks on industrial subsidies and promoting development but that such talks "should be clearly defined to prevent generalised and macro discussions of state intervention or industrial policies".

MY COMMENT

I think is it TOTALLY obvious how china has been violating just about EVERY aspect of trade since being allowed into the WTO. Especially toward the USA. I WELCOME TOTALLY any and all tariffs on China.....although in the end...it will all turn out to be a....NEGOTIATION.

As I said...this content is from....INDIA.

Anyway.....I dont want to spend a lot of time on these issues....so you guys have fun....carry on.

 

I don't really have a bone to pick with the WTO but let me make the most political and divisive statement that has ever been written in the Stockaholics forum:

Any and every time you have a governing body of three or more people, their top two priorities will be increasing their own power and redistributing wealth, in that order.


lol!

 

I am sure you three are very aware of my views on this topic from W's Long Term Investor Thread, but I will distill it down for posterity and to provide fodder for those who disagree:

1. I do not trust anything any government says at face value. They have everything to gain by lying to the public.
2. The very wealthy always have an ulterior motive and will do almost anything for money and/or power.
3. Human history is littered with the rise and fall of empires. The basic mechanics are the same.
4. The U.S. is the current empire in charge. It did not get that way by being altruistic.
5. It goes without saying that living in the U.S. is far better for the average citizen than in a place like China or India due to being largely democratic and capitalistic. You would not catch me dead living in China or India.
6. Keeping in line with point number two, the wealthy in the U.S. put growth and profits above stability and the needs of the average American by offshoring as much as they could to other countries.
7. The U.S. as a whole profited immensely from offshoring, and people could afford far more goods than before, but build quality on certain goods plummeted.
8. The U.S. has become a service and consumer economy with the vast majority of manufacturing done internationally. Our higher margin economy and exports give us a higher comfort of living compared to the countries who make our stuff, thus we have the money to buy more. This is the main reason why we have a massive trade imbalance. I'm not saying this is the way to go, but it is reality.
9. ALL countries will (and do) manipulate and twist things to make situations favor them. The U.S. does this all the time. Look no further than our foreign policy for decades. The carnage we have left behind in places like the Middle East has been great for business and "our national interests". See point number two again.
10. With point number nine in mind, China is doing what any other country in their position would do: Twist things to their benefit. Is it right? Nope. Is the U.S. innocent? Nope.

Now let's stomp on some eggshells for context and to make Tom happy:

*Trigger Warning*
I personally think Trump is a moron, and when he opens his mouth, he only confirms it. He is the human incarnation of the sayings "it's not what you know but who you know" and "it's not what you say but how you say it." He only cares about himself. Those who view him as an actual patriot need to get their heads examined. He is a classic thin skinned, vindictive, narcissist who would sell out his own mother if it got him ahead. Everything in his world is transactional. He lives to make a deal - even if it is shit. And the Republican party bought into him for their own gain because they know a carpetbagging conman they could get behind when they see one. Look at his cabinet meetings! Everyone is kissing his ass, stroking his ego. They know if they get on his good side they advance. Does anyone really think these people are the best for the job? No. They are the best ass kissers. "Little Marco" is now the Secretary of State! It's simple quid pro quo. His followers curry favors, and he profits from attention, punishing his enemies, and business deals being made behind closed doors. He literally is an aspiring fascist. This stuff is not hard to figure out if one takes their feelings out of the equation.
*/Trigger Warning*

Having said that, I am not some MSNBC watching Trump hater. If he does something good, I will be happy to give him credit. A win is a win, no matter who it comes from. I'm hoping he can get the damn ball rolling on eliminating the time change twice a year. He said he wanted to.

With the points above in mind, Trump is delusional if he things his current Tariff plan will work:

The "bring back the jobs" argument:
- The cost of living is too high in the U.S. for most overseas manufacturing jobs to come back and be competitive labor-wise.
- Companies are falling over themselves to make as many jobs automated as possible to cut labor costs and increase profit.
- China has spent decades and trillions to make the most complete and efficient manufacturing infrastructure in human history. That's will not be matched in India or in the U.S. for years (probably decades).
- China has little regard for labor and environmental laws historically. I understand that is getting better recently, but there is absolutely a reason why they have the rare earth metals market cornered: they are willing to trash their environment to do it. Are we? If yes, that will still take time. Are U.S. workers willing to work like the Chinese do? Have you seen the average American lately? I'm betting not. This kind of area is going to India, not here. They are more willing to work like slaves and trash their environment.

The "we are tariff victims" argument:
- No. No we are not. We did not get to be the most powerful nation in history by being victims. We have benefitted immensely post WWII, from our geographic location, from our resources, from our entrepreneurial spirit, and from bullying other nations into doing what we want. If anyone has a problem with the way things are right now, go see point number six above.
- The U.S. is a capitalist country driven by growth and profit. We would love to take over the world by saturating it with our products and IP to the exclusion of everything else. To do otherwise would be to turn down growth opportunity. We've flooded markets to gain control before, and other countries with similar philosophies would do the same if they could as well.
- In light of this fact, other countries do not have the same philosophies as the U.S. and nor should they. They should have the right to protect their industries from outsiders. We've done that against Europe when we were just starting out. If India wants to tax our cars 100%, fine. If the citizens of India have a problem with not having cheaper U.S. cars, they know who to protest to change that. I do not see any cars from India over here, do you?

Would I like more U.S. made quality products? Absolutely, assuming they are superior products. If not, then who cares at this point? Menial manufacturing jobs are dying as automation becomes more advanced and cheaper. What about extracting our resources at a higher rate? As an environmentalist through and through, I am inherently skeptical of claims made by companies when they say they can do it cleanly. Some of it is real, but a lot of it is just talk. Cutting corners always rears its ugly head. That balance of resource utilization and national security will always be debated.

The main thing I would like to see is the reshoring of high skill jobs like computer tech that lead to a more streamlined and geopolitically secure supply chain. We gave away the farm on that one, and I would love to see us surpass TSMC someday.

To bring it back to the tariffs themselves, Rand Paul is on point regarding checks and balances. Where the hell is congress right now?



Yeah, I totally screwed up the "distilling" part. You got the ten part series instead. Lucky you

 

Of course it's from India. They want to be the new China. Any bad PR for China benefits them.

 

Here's something to consider.

The last time the US had a trade surplus was 1975. That was 50 years ago.

If trade deficits matter, how is it the USA can go 50 years without one and still have the largest GDP in the world?

There is an argument that deficits do not matter. I don't consider this assertion to be factual but I am forced to admit, trade deficits do not matter nearly as much as I used to think.

Do trade deficits matter on any level or is this a matter of me not wanting to admit my intuition is wrong?

 

The only reason *any* Indian publication would ever write something factual is if they thought it was in the best interest of India.

 

YES....that article is from INDIA.....in one of the worlds most respected business publications....The Economic Times. AND.....I dont believe there is anything shocking or controversial in the content.....EVERYTHING....in the article is pretty obvious. We have all witnessed it and lived with it over the past 20-25 years.

 

The idea that the USA, the richest and most powerful country in the world, whose residents live like kings when most of the world's population lives in poverty, is the victim in all of this is post-modern nonsense of the highest degree.

Tariffs are doing to ourselves in peacetime what we do to enemies in wartime.

 

TSMC is Taiwanese, not Chinese. This is the reason China plans to invade Taiwan and it's also the reason US plans to defend Taiwan.

China has a bunch of semis and they have very real and desirable, but not leading edge, capabilities. Their competition on the global stage is only at the news release level. In terms of technology, they cannot operate on the level their news releases claim.

Chinese semis are close enough to occupy the low end of the consumer IT industry and they have the scale to dominate in that space.

I would not bet on Millennials regain any science or industrial crowns. Western work ethic is a piece of junk compared to Asian work ethic. We don't work as hard in school and we don't work as hard in business. There are still quite a few amazing people in America but we aren't going to broadly take the crown from Asia without a massive cultural shift.

The Chinese, on the other hand, have a very reasonable shot of one day leading/dominating/owning the global semiconductor industry. When they annex Taiwan, that day will come a whole lot sooner.

 

I'm aware. Bad wording on my part. I'll just take out the China mention since we don't need to surpass them (yet).

 

Yes, that's why we take Asian people and make them American!

America's greatest import is the people; it takes other countries' smart/hard-working people. But current policies are scaring those people away, and will lead to brain drain.

 

Totally agree.