Last week, President Trump moved to place tariffs on imported steel and aluminum imported from our allies in Canada, Mexico and the European Union. Political leaders in North America and Europe have universally condemned this with threats of retaliation, while economists and businesspeople are overwhelmingly on record in supporting free trade. Why then, would the first chief executive of this country coming from a business background, promote new tariffs?
The answer may be in the “Art of the Deal.” And “deal” rhymes with “steel.” Thinking positively, the true purpose of this move may be to initiate better deals with our trading partners across the board.
Many have attributed protectionist motives to this action, but is that the only rationale? The real threat on metal imports is from China, whose industry possesses excess capacity and has been dumping product at subsidized prices into this country. Besides that, recall the larger context of President Trump’s threats to block sales of German cars just last week. He said, “When you walk down Fifth Avenue, everybody has a Mercedes-Benz parked in front of his house … How many Chevrolets do you see in Germany? Not many, maybe none.” Further, the new tariffs have been justified for national security reasons. This means that selected allies who cooperate in negotiations can be taken off the list with an artful stroke of the pen.
If this analysis is correct, then the likelihood of an all out trade war is low, and instead, we are more likely to see these themes used in renegotiation of NAFTA and EU trade deals. If my opinion is wrong, and trade conflicts persist, then the initial, direct impact would be higher prices for metals and other goods, a.k.a. “inflation.” Fortunately, the Investment Committee at Private Ocean has recently taken a close look at how our portfolios respond to inflation and to consider refinements. While higher inflation could be detrimental, our portfolios are appropriately positioned to respond to higher inflation within the most likely scenarios that we can foresee.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Private Ocean, LLC[“Private Ocean”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Private Ocean. Please remember that if you are a Private Ocean client, it remains your responsibility to advise Private Ocean, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/ evaluating/ revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Private Ocean is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Private Ocean’s current written disclosure Brochure discussing our advisory services and fees is available for review upon requestor at www.privateocean.com. Please Note: Private Ocean does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Private Ocean’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Also Note: If you are a Private Ocean client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.