BALTIMORE, MARYLAND – China and the U.S. signed a truce in the trade war yesterday. Kinda. Sorta.
To be sure, the deal does not remove existing U.S. tariffs on Chinese imports and leaves questions as to how the terms of the agreement will be enforced. The deal is also seen as “fragile” by some analysts who believe additional levies could still be implemented.
But kinda and sorta – and another $142 billion from the Federal Reserve on Monday and Tuesday – were all investors needed to push the Dow up over 29,000.
As expected, The Donald could never go full Trade War… Too much at stake. Most important, an election.
And as expected, after all the sound and fury, little actually changes. Except that the economy weakens and The Swamp (now that the feds manage trade as well as everything else) gets deeper.
Backfiring Trade War
As estimated by Moody’s Analytics in September of last year, total U.S. job losses from the tariff war were 300,000. Then, a Fed report followed, concluding that the trade war had “backfired”:
A key feature of our analysis is accounting for the multiple ways that tariﬀs might aﬀect the manufacturing sector, including providing protection for domestic industries, raising costs for imported inputs, and harming competitiveness in overseas markets due to retaliatory tariﬀs.
We ﬁnd that U.S. manufacturing industries more exposed to tariﬀ increases experience relative reductions in employment… Higher tariﬀs are also associated with relative increases in producer prices via rising input costs.
But you have to give Mr. Trump credit. No matter how claptrappy an idea may be, he holds onto it like a dog with a bone…
End of an Empire
A report in yesterday’s Wall Street Journal told us that Trump was still considering 100% tariffs on French wine and luxury goods. This comes in retaliation against the Macron government for threatening a 3% tax on big U.S. e-commerce companies operating in France.
Another report told us that the Trump team threatened a 25% tariff against European autos to punish the EU for trading with Iran.
In other words, U.S. trade warriors not only aim to stop Americans from doing business as they see fit, but the Germans and Italians, too.
Meanwhile, Peter Navarro, the president’s crackpot economist, argues – also in The Wall Street Journal – that tariffs are a wonderful addition to America’s bully arsenal… and that they need a “fair test”:
The economy remains robust, wages continue to rise, and inflation stays muted. Why have the doom-and-gloom forecasters been so wrong?
The French must have asked the same question in 1812 when Napoleon’s troops arrived in Moscow. Bonaparte was trying to win a trade war by forcing Russia to stop doing business with England. And everything seemed to be going so well.
We don’t take it personally, mind you. But trouble doesn’t exactly step off the 4:15 flight from Montreal, looking for someone holding up a Doom & Gloom sign. Instead, it sneaks across the border.
And doom-and-gloomers are always wrong… until they’re suddenly right.
Napoleon’s Grande Armée crossed the Neman River and invaded Russia. His 400,000 sparkling soldiers marched in good order – all the way to Moscow.
But when the survivors finally crossed the Berezina, on their retreat back to France, there were only 27,000 of them – shivering, starving, and dying fast. And Napoleon’s empire died with them.
But let’s turn back to our own situation…
Next Stop: Moscow
Yesterday, we explored why inflation is inevitable. We wound up agreeing with mainstream economists and other jackasses who think the Fed did the smart thing on September 17, 2019.
On that date, the Fed crossed its own Neman, ending its program of moderate, timid, halting “normalization”… and invading the markets with nearly half a million freshly outfitted new dollars.
The money went into the “repo” market to fund the federal government’s excess spending.
Yesterday in these pages, we also saw that the feds will need to refinance – “to roll” – $6 trillion of short-term funding over the next six months.
With foreigners out of the picture, there is no way that much can be financed honestly. The Fed will have to “print” more money. Setting the pace, in the first two days of this week, it added the aforementioned $142 billion to the nation’s money supply.
And as Luke Gromen – whom we quoted in yesterday’s Diary – explained, there’s no other acceptable choice. Had the Fed not stepped into the breach when it did… the thin and exhausted line of defense would have given way.
Then, stocks would have crashed. The bond market and the world economy would have collapsed. The housing industry would have been leveled. It would have been like 2008, in other words – only much worse.
U.S. stock market investors, for example, have gained some $20 trillion over the last 10 years. Take away Fed support, and most of that money would disappear in a matter of minutes.
And once again, the doom-and-gloomers are predicting disaster… your editor among them.
On to Moscow!
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