Liberation or Ruination Tarrifs – Part 3

Q: Do you see a global tarrif war beginning? Or is this all just showmanship in Trump TV style?

A: I think once reality has been factored into the calculation, two categories of tarrifs will emerge. The first is what I call fake tarrifs like the ones imposed on Canada and Mexico simply because it hurts the US more than anyone else. No matter how the calculations are done the US security imperative needs NORAD. They also need goods to flow from Mexico to the US to feed factories and grocery stores and manpower as well….these are very practical realities. The EU. I feel fall into the same category, but over there tarrifs are used as a crowbar to get a better deal for the US. That’s how I see it essentially. Countries like Thailand, Malaysia, Indonesia and Vietnam fall into an entirely different category. Over there my feel is tarrifs would be used to realign these countries back to the US agenda. But any response will be bloc inspired thru ASEAN. The US for good reasons believe many countries in ASEAN has pivoted to China. They believe equilibrium needs to feature in the new US relstionship. Vietnam is in a special category because it is a gateway into the South China Seas. It will be more complex. So if the US doesn’t get the Vietnamese back to their camp, its difficult for the seventh fleet to do what they do. Again I see these as bluff or crowbar tarrifs.

China on the otherhand. I see as a real tarrif. Tarrifs there will be deployed there as a containment tool. But it will also end up as a bluff tarrif as well, not because the US planners want it to be to so, but simply because the Chinese planners have war gamed this scenario in every possible permutation and in every outcome the US loses! So my point is this, one has only X or Y number of noses and so one can really only cut off a finite number of noses to spite ones adversary. My point here is China is no longer the under dog, if the US wants a rumble they will get one and this is why I believe at some point there has to be an economic detente where both sides agree to live and let live.

I see this not as a logical outcome, rather its a strategy that yields the best outcome in conditions of acute scarcity. For this scenario of detente to arise, the US needs to go thru more pain….this is why I don’t see the recent US market meltdown as a bad thing per we. To me, its a necessary phase for both sides to reach an understanding of sorts.

Q: Will markets continue to bleed? And what do you see as the long term ramifications of this climate of economic anxiety?

A: As I mentioned the Chinese planners have war gamed the various scenarios thousands of times. The short answer is markets will certainly continue to give way, but one needs to understand. In no way is this a new thing. So when people say the world will never be the same again. I think they are just being melodramatic. The facts are like so – between Xi and Trump. Trump has a lousy hand. If he plays this by doubling down on China with tarrifs. China will continue to call his bluff and that might just be the straw that breaks the camel’s back and throws the US and the world into a recession and if that happens Trump will certainly lose the mid term elections and thats it…kaput! But its early days Kompf and as I said, nothing is written in stone, not yet….so lets just kick back and watch what has to come.