Tariffs vs Trends

In the short-term we are going through a tariff and trade war issue right now that’s been a topic for almost a year. We have seen the Fed lower the interest rates slightly to deal with manufacturing weakness. The point we want to make is, as important as tariffs are in the short-term, they can be eliminated at any time. Even though it is causing a short-term impact there are two trends that we believe might be a lot more important to the Chinese and global economies.

Imports on Goods

The first long term trend is that the amount that China has been importing from the U.S. in high value machinery and equipment has been dropping steadily over the 5 to 6 years. A great example would be a CAT scan for a hospital. The Chinese, historically, would not have the software or engineering expertise or ability to manufacturer it. So, they would buy a product like that from the United States. The Chinese economy is becoming increasingly more sophisticated to build equipment like a CAT scan. Before we even got into the tariff talks, the import percentage was already beginning to drop. We think this might cause more of a long-term impact.

Debt Financing

The second trend is, like many other countries, the Chinese use public market institutional debt to finance major infrastructure projects. We’ve been doing that for a long time in the United States. China has been on a “break neck” pace in adding debt and buying infrastructure projects for the last 20 to 25 years because they have been trying to catch up on the world stage. For example, let’s say there was a lot of debt structure that the central government was doing such as building a large bridge over a river in Shanghai. About 5 to 10 years ago you would see that project being worked on by a large engineering firm from the United States. There has been a significant reduction in Chinese debt financing. Now that they have leveled off their debt financing the world economy is not benefiting like it was. So, a combination of these two trends shows there are bigger long-term threats than just the tariff discussions.

 

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here

 

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

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