Last week we traded back, especially on Thursday and Friday. The reason for this was President Trump announced tariffs on about 50 billion dollars worth of imports. On Friday, China retaliated by saying they would put tariffs on 128 American products. When these types of things happen we like to look at the numbers. Just like last week in our vlog, #270 It’s the Data, Not the Noise, we talked about the positive impact of tax reform and repatriation outshining the noise of tariffs. This week it’s the same. On Tuesday we have consumer confidence coming out, which has been trending up. Also on Thursday, we will have consumer spending coming out. The numbers are especially important to look at while we are getting closer to earnings season.
Companies & China
Companies are playing chess, while the media is playing checkers. Companies are getting well ahead of what the media is focusing on. One downside is that the market is influenced by the media, which we saw last week. They are using the new tax laws and deregulation way ahead of everyone else. We can see evidence of this in their earnings and earnings revisions. In relation to playing chess, and in response to President Trump’s tariffs, you saw China respond quickly with 128 very focused tariffs which shows they were ready and possibly anticipated this happening. They are showing they are ahead of the game. While that’s happening it’s good to see that the U.S. is actually participating in the game, even if it’s checkers.
Surplus & Deficits
The issue of improved taxes and deregulation really overwhelms the trade deficit. If you go back to 1607, and the founding of Jamestown, for a vast majority of those years the U.S. has had deficit trading and trade wars. The only time we have had a consistent surplus and minimal trade wars was a 30-year period from 1945 to 1975. This coordinated with the time following World War II where we had industrially devastated our competition. The opposite side of a trade deficit is a current account surplus. When we buy a product from other countries we give them a dollar and they give us a widget. They then take that dollar and invest it in our economy. This is partly why we have seen our economy grow faster than everyone else’s economy.
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