Trump Tariffs

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

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Based on the weakness being seen this morning with the US ag-markets I thought I would post my March 2, newspaper column Commodity Insite, entitled, "Trump Tariffs" once again here on Inside Futures. The column appears to be timely.




March 2, 2018
Trump Tariffs


The big story this week for the entire Big Four: stocks, bonds, currencies and commodities is the news that President Trump plans to place tariffs on steel and aluminum. Two days before the news was announced, the Dow Jones fell more than 400 points. The two days after the news was fully digested, the Dow dropped another 800 points. Needless to say, the news was not greeted warmly by any market whatsoever.

But a trade war, tariffs and so forth does not it seem to have upset or bothered President Trump. From USA Today, President Trump declared Friday that "trade wars" with other countries would be "good, and easy to win," a day after his pledge to put tariffs on steel and aluminum drew threats of retaliation from other countries and tanked the American stock market.


My top three trading rules I tout on a regular are; 1) Nobody Knows for Sure. 2) From an old Chinese saying and I quote, Zng sh shyng yg tngzh. And 3) Know Your History. And based on history, here is what I recollect about trade wars of any kind even though the President claims they are, good, and easy to win.


From WikipediA. The Tariff Act of 1930 otherwise known as the SmootHawley Tariff or HawleySmoot Tariff,[1] was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.


When news of the Trump tariffs hit the wires, virtually all economists, several members of the Trump Cabinet and a long list of Republican members of the House and Senate quickly opposed the measures. The reason they opposed the tariffs was because they knew their history. Knowing history is my number (3) rule when it comes to trading, speculating or investing.


Here is the history those opposing the tariffs quickly remember. From WikipediA. The tariffs under the act of 1930 were the second-highest in the U.S. in 100 years, exceeded by a small margin by the Tariff of 1828.[3] The Act and following retaliatory tariffs by America's trading partners were major factors of the reduction of American exports and imports by more than half during the Depression.[4] Although economists disagree by how much, the consensus view among economists and economic historians is that "The passage of the SmootHawley Tariff exacerbated the Great Depression. That final sentence highlighted was done by me.


Several thoughts ran through my mind when I heard of the Trump tariffs. The first was, oh, oh! Someone does not know their history!The second thought was China and the simple fact they purchase more than 50% of all soybeans exported from the U.S. It is doubtful that China will respond in kind by cancelling US soybeans. I only offer that observation because the tariffs were not specifically earmarked toward China. But you never know about such things when emotions begin to run high.


However, in early February, Chinas Ministry of Commerce said they were investigating whether to limit imports of U.S sorghum, a livestock feed, in response to to other Trump tariffs on solar panels and washing machines. Thus, China already has U.S. tariffs in their crosshairs. That alone should be bothersome to U.S. soybean producers, hog producers and anyone in the US that has a job.


Robert Shiller, Nobel Prize winner in Economics in 2013 had these pithy remarks about the Trump tariffs in an interview on CNBC. He said, President Donald Trump's tariffs proposal will have an "immediate disruption effect" and will hurt most people, except perhaps steel workers and those who own stocks in steel companies.


Mr. Shiller went on to say, "I'd wonder if this isn't just a first step, that Trump has in mind raising other tariffs. Even if he doesn't there will be other countries who will retaliate and they'll get bigger. This is really like a first shot in a war and that's what is worrisome. That's what happened in the Great Depression.


When investing or trading in the period ahead with the Trump Tariffs about to become law keep these thoughts in mind. One, know one knows for sure what the markets will do. Secondly always practice that old Chinese saying and for those that forgot their Mandarin from high school or college it means, always use a stop. And finally, before you plunk down your hard earned cash in any market, know your history. "

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As I type furiously away, grains and livestock prices are deep in the red. But note that stocks, bonds, the dollar, gold and silver are higher. Thus, the weakest of links in the world of commodities are the US ag markets.


If the Trump Administration places tariffs on Chinese good tomorrow, the odds are high China will retaliate in kind next week. If they do so, the trade war will kick into gear big time with China. And unfortunately, will likely suck Mexico and Canada and other U.S allies as well.


The time is 9:10 a.m. Chicago




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