Since my previous column detailing US President Donald Trump’s tariff illogic, two US trade “deals” plus talks have materialised. Many pundits point to these as “proof” that Mr Trump’s tariff chaos is solely leverage for deal making and freer trade ahead.
Slow down. While no one can read Mr Trump’s mind, don’t overstate his talk or actions’ positive impacts. Endless tariff flip-flopping chiefly fans rising uncertainty, which stocks always hate – hurting America worst. Let me show you – and where to uncover opportunities.
First, you may not believe it, but stocks are intermediate and longer-term truthtellers, particularly big moves and spreads. Through May 23, non-US stocks returned 13.7 per cent this year in USD. China’s gained 16.3 per cent, Europe 19.6 per cent and Mexico 29.1 per cent! Booming! And the US’s S&P 500? Down 1 per cent. Striking lag!
Seen differently: Of the 47 MSCI All-Country World Index (ACWI) countries, America’s return fell from first over 2023-2024 to 43rd this year. A stunning shift.
What happened? Mr Trump’s on, off, back and forth whipsawing vacillations made funds flee America. Tariffs always hammer the imposing country most.
Stocks know attempts to reduce trade deficits are senseless. A trade deficit means a capital account surplus by definition – that capital is foreign investment into America. Why is reversing that desirable? Why is the government intervening on prior successes – versus letting free markets sort out the most efficient use of capital – positive? How is policy that changes on a whim good?
Stocks know it is bad. Stocks’ truth-telling shows you exactly that. Markets weigh reality, not efforts aimed at discerning Mr Trump’s “true” goals.
What “deals” have emerged since April 9? Looking past Mr Trump’s boastful bluster, only two materialised – Britain and China. Both are fluff. Britain’s is a one-year, non-binding, cancellable agreement to mitigate a few tariffs until a full trade deal can happen – maybe. A deal to make a deal! It affects only a handful of industries. Crucially, Mr Trump’s 10 per cent tariff remains on most UK goods.
The China deal impresses, but only because expectations were incredibly low. Yes, it cuts 145 per cent tariffs on Chinese goods to 30 per cent, while China dropped retaliatory levies from 125 per cent to 10 per cent. Yet it lasts only 90 days – buying time – another deal to make a deal! Plus, tariffs on China remain 30 percentage points higher than in January. Both countries remain impaired, especially the US.
Then, on May 16, Mr Trump boasted 150 nations now sought “deals”. Flip-flopping again, he says there isn’t time to negotiate them. His “solution?” Simply telling nations “soon” what rates they must pay – and perhaps offering chances to appeal.
Didn’t he already do just that on April 2’s “Liberation Day?” How did that work? Badly! How will this work? Will rates be higher or lower than after April 2? He hasn’t said, further fanning uncertainty.
Days later, he threatened the EU with new 50 per cent tariffs – and 25 per cent on Apple products – only to flip again days later, postponing EU tariffs through July 9 after plans to fast-track trade talks emerged.
Does this show Mr Trump’s talk and actions are somehow clever? That he plays 4D chess while we all play checkers? No! No one wins from crazy vacillations or the higher tariff “deals” so far delivered.
Meanwhile, legal challenges to Mr Trump’s tariffs progress maybe killing some of this. And maybe real deals come, actually lowering trade barriers and uncertainty – a huge potential upside. Maybe not.
But as my last column said, even if all tariffs return, the pain will be less than feared – bullish.
Importers can readily skirt America’s understaffed, overwhelmed tariff-collecting Customs and Border Protection staff through illegal and legal means.
The latter include “tariff splitting” – stripping out services-related costs like marketing to reduce goods’ values – or storing imports in bonded warehouses. Or shipping in values under $800, skipping tariffs. And myriad illegal ways like misclassifying and undervaluing goods.
Exporters can “tranship” or re-export through lower tariff nations. Hence, China’s April exports grew despite shipments to America tumbling 21 per cent. South-east Asia absorbed the difference – shipping them on. This drove surges in April re-exports to America – like Singapore’s 113 per cent year-on-year spike! Vietnam and Taiwan enjoy similar surges.
Manufacturers can even reship through Canada or Mexico, gaming the United States–Mexico–Canada Agreement tariff exemption. Chinese middlemen advertise such services on TikTok!
Hence, while Uncle Sam’s April total tariff collections rose, they missed administration forecasts by 75 per cent. That will persist.
The good news? Tariff fear exceeds reality, especially outside America. That is bull market fuel – helping non-US stocks maintain their leadership, particularly in Canadian, Chinese and Mexican markets – and in Europe, as I predicted on February 3.
