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Trump's bullying tactics could backfire

Peter Warnes  |  17 Aug 2018Text size  Decrease  Increase  |  
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An old friend, a Wall St veteran and a dyed-in-the-wool Republican, who I met when working in New York in 1974, wrote an interesting letter recently. The following is an excerpt.

“The tug of war continues! While the US has historically had low tariffs, I believe the suggestion that imposing tariffs will reverse the US trade imbalance is shallow thinking. To give perspective, much of the foreign buying of US Treasury debt comes from the imbalance of trade. The Chinese, Japanese and Europeans take their excess trade flows and buy US debt. That helps keep interest rates low and has greased profits. Tariffs will raise the cost of goods and push inflation to levels not seen in the US for some time. That, in turn, will cut demand and slow the economy. Probably not what the White House wants!

“The bullying tactics the Trump administration has been using may well have worked for a real estate developer, but, when it comes to countries like China and Russia, it may not be successful. Neither of those countries are short-term oriented or guided by the election cycle.

“For those of us who are investors, the scenario which has recently unfolded offers a buying opportunity. The Chinese economy is growing at 6% + versus that of the US at +/-3%. Imposing punitive tariffs will not help either country, rather it will hurt both. And there is little to be gained from appearing to be on the same moral ground with the Soviets.

“During July, I began to read Crisis Point, a book co-authored by senators Trent Lott and Tom Daschle. This is a good read if one is interested in how the US political system has gotten to where it is now and perhaps how it can straighten itself out. These two retired senators were both leaders of their parties from the 1990’s until early in the 21st century. The art of compromise has been lost and was, the authors claim, the basis on which the US government system was built. For the US to continue to lead both financially and morally, we will need leadership to set realistic common priorities which allow the country to move ahead in a more unified manner.”

Interesting coal face comments indeed.

US July inflation points to September rate hike

The gradual rebound in inflation continued in July and increases the chances of the Federal Reserve (the Fed) lifting rates at the 25-26 September meeting. July’s headline consumer price index (CPI) increased by 0.2% month-on-month (m/m) from June, up from 0.1% m/m May to June. Year-on-year (y/y) was 2.9%, the same as June and the highest annual rate in over six years. The core CPI, which strips out volatile food and energy, was also up 0.2% m/m, lifting the y/y rate to 2.4%, the fastest annual increase since September 2008.

Wht grad
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Peter Warnes is Morningstar's head of equities research. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

 


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is Morningstar's head of equities research.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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