Trump’s Protectionism Could Destroy the U.S. Economy, Causing Global Financial Collapse
In this first half of the 21st century, we’re experiencing a truly remarkable phenomenon. No, the aliens from Planet Zoltan haven’t landed yet. John Lennon’s hope for people living in harmony and peace, alas, remains an alien concept. No, the miracle is that we have not yet witnessed a major financial collapse or even a stock market crash.
Indeed, the Department of Commerce’s imposition of tariffs against a Boeing Co (NYSE: BA) rival suggests that someone’s not thinking straight in the White House. Thus, instead of “Making America Great Again,” Trump has just triggered a perfect storm for the U.S. economy in 2018, which will inevitably cause global financial collapse.
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President Trump may be following through on his electoral promises but he has been too keen on following the text of the plan rather than its spirit. The problem is that Trump lacks a coherent and reasonably plausible program for the U.S. economy. Thus, he’s left to focus on slogans and frankly old ideas about cutting taxes and building roads and bridges. He does not have the slightest idea of how these plans can be funded without staring at the federal deficit. In the process, he risks dragging down the U.S. economy in 2018 with ill-thought-out (if thought-out at all) protectionist measures that will have dire consequences.
The truth is, given the past few days of the Fed playing around with the term inflation, tax cuts, and a new wave of trade protectionism, the financial markets are heading towards a perfect storm: central bank policy failure, a carnage in the bond market, a global recession, and a tax bloodbath in Washington. Investors should keep note and stay alert. Surely, some tariffs, strategically applied, can help. A smart trade strategy to help the U.S. economy should focus more on fairness and farsightedness than gut reactions. The latter is a recipe for disaster.
A 220% Tariff on Bombardier Hurts the U.S. Economy Far More Than It Helps Boeing
The Trump administration has decided to impose 220% anti-dumping duties on Canadian Bombardier Inc (OTCMKTS: BDRBF) “C-Series” airliners. Far from teaching Bombardier and Canada a lesson on not subsidizing the aerospace industry—Boeing gets plenty of subsidies in the form of military contracts—it marks the first salvo of a trade war. But it’s a trade war with the world, one which the United States risks losing.
There was no need to harp on Bombardier. It merely complements Boeing, which sells planes to a different market. It does not compete with Boeing. U.S authorities—the Trump administration’s people in the Department of Commerce—have acquiesced to Boeing’s tantrum. (Source: “U.S. slaps steep duties on Bombardier jets after Boeing complaint,” Reuters, September 27, 2017.)
Secretary of Commerce Wilbur Ross claims that the imposition of duties is due to the Canadian manufacturer’s failure to cooperate with the investigations. The Department of Commerce’s decision against Bombardier will only become effective if the U.S. International Trade Commission will give Boeing a reason for a final decision expected next year. But Trump has sent a message and the damage is done.
The Canadian government’s threat to block the purchase of 18 Boeing “Super Hornet” hunters is nothing. Clearly, Boeing expected this. But, just as a child who complains often needs parents to stop him/her from getting hurt, the Trump administration should have intervened to silence Boeing.
There’s Always Airbus…
The 220% duties slapped on Bombardier will have resonated loud in Beijing, London, Berlin, Tokyo, and Paris. Like many aerospace manufacturers, Bombardier employs people worldwide. They will feel threatened. The British government, for example, called Trump just last week just to ask him not to make rash decisions on the Bombardier affair.
But there’s more. If this is the game that Trump wants to play—as Europeans, Chinese, Japanese and just about everyone else will think—then the world will simply buy more Airbus SE (EPA:AIR) airliners.
Sooner rather than later, Boeing Co shares will start to feel a cold breeze coming in from the world. Boeing happens to be America’s largest exporter in terms of value. Thus, its downfall alone could cause a U.S. stock market crash.
But, the logic of avoiding U.S. goods and services will go far beyond aerospace. Trump’s determination to limit imports of goods from abroad will hurt the U.S. economy. It’s a boomerang from agreements such as NAFTA and to the thousands of new jobs Trump promised. If Trump wants to play hardball, seasoned politicians elsewhere will respond in kind. They will slap duties and taxes on such companies as Alphabet Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores Inc (NYSE:WMT), and of course, Boeing.
And that’s not all. The United States has a large internal market. Thus, when duties on the many goods it imports are slapped on in such an indiscriminate and heavy manner, their price becomes unaffordable. Trump may want to start explaining to Americans that introducing duties, quotas, and tariffs against their favorite products will raise their cost of living.
Most of the products sold in American stores, smartphones, jeans, televisions, and PCs will go up. Protective policies of the U.S. will only trigger chain reactions in other countries, from Mexico to China to Europe, further reducing trade and, consequently, weakening the U.S. economy and all other economies. That’s no way to make America great again. But it is a way to trigger a massive stock market crash and financial collapse.
