War, what's it good for, absolutely nothing! or so goes the Motown Vietnam protest song. Investors shouldn't be surprised that Trump is delivering on his promise to threaten Trade Wars to fix what he perceives as unfair trade decimating US business.
Trump's modus operandi is an ego anchored in domination and alarm. It worked in business deals, it protected his empire from defaulting to banks in the early 1990's and has been a natural fit for politics which thrives on alarmism and demagoguery. Extreme war rhetoric between Trump and N.Korea alarmed the world, yet thus far has resulted in an historic cease-test-fire and opening for rational dialogue. Alarmism over a depleted military helped pass a record increase in military spending and omnibus bill Friday.
Will his Trade War threats have similar results as part of another negotiating tactic? The Section 232 Tariffs on Steel and Aluminum have already led to claims of successful trade deals with Mexico, Canada and Europe, who may now be exempt from penalties. China is the primary target that remains for Trump to improve trading leverage. In all cases, Trump isn't playing by conventional rules or displays of decorum. Trump has a penchant for bullying tactics with an alarming dose of purposeful unpredictability and appearance of irrationality. Asking for the moon to gain an inch smells like victory for our President. Being crazy like a Fox or dumb as a rock may be a matter of perspective that only history can attempt to assess. In the big picture our trade deficit as a percent of our economy has been improving over the past decade and currently resides at levels seen in the mid-1980's.
For now, the stock market is finally becoming concerned as the Dow fell over 1,000 points in the past 2 days. After 5 superb quarters of corporate earnings growth since Trump's election, equities are now down 10% from recent record highs, attributed to uncertainty over US trade related profits in the future. Many great American companies like Apple, Caterpillar, FedEx, Starbucks and GM need China and will feel the bite in minutes should China decide to retaliate. We have been warning of this 1st quarter 2018 correction since late 2017 that was forecast to be greater than a 10% decline before new investments in stock should be considered. Given the lack of extreme fear, lower and longer are the themes of this correction required before the psychology of fear is sufficient to form a solid bottom.
