Dear all,
This new (10 mins) youtube video by Brian Tyler Cohen illustrate the level of understanding of tariff by Trump and the situation that he has put US (and the world) in as well as his plan for cutting US income tax for the UHNW (ultra high networth).
Regards
James
This weekend I kept hearing in the mainstream media (CNN)
"China needs us more than we need them"
It didn't sound right. I'm starting to think it's the other way around as well.
Can anybody back up either opinion with numbers?
Marco,
The S&P 500 companies earns 6x more revenue from China than what the U.S. exports to China.
US is currently a service based nation and not based on the manufacturing industry 50 years ago.
Tariffs, and the existing relationship with China are gonna hurt this stat.
Like what Brian Tyler Cohen mentioned in the video, China exports to the whole world and can survive without the US market for a while without seriously impacting the GDP. Without imports from China, US consumers will be affected as there will be empty shelves as soon as June this year.
Regards
James
China imports are definitely more balanced. Top 5 countries are all around 6%, or 30% of the total imports. Not so the USA imports which are heavily reliant on the top 3 countries, which are 42% of the total imports.
I guess when the media/politicians say
"China needs us more than we need them"
They are just referring to the fact that USA imports are indeed #1 in China, but just barely, and completely misses the point that USA is far more reliant on China imports than the other way around. In other words the emperor has no clothes.
And yes, service surplus of ~$30B is a round off error when compared to goods.
Total Imports in 2024: $3.36 Trillion
GDP 2024: $28T
GDP/Imports: 8.3x
| Imports Top 5 | Value | Year | Pct |
|---|---|---|---|
| Mexico | $509.96B | 2024 | 15% |
| China | $462.62B | 2024 | 14% |
| Canada | $421.21B | 2024 | 12.5% |
| Germany | $163.39B | 2024 | 5% |
| Japan | $152.07B | 2024 | 4.5% |
United States Imports By Country
Total Imports in 2023: $2.56 Trillion
GDP 2023: $18 Trillion
GDP/Imports: 7x
| Imports Top 5 | Value | Year | Pct |
|---|---|---|---|
| United States | $165.16B | 2023 | 6.5% |
| South Korea | $161.74B | 2023 | 6.2% |
| Japan | $160.48B | 2023 | 6.1% |
| Australia | $155.64B | 2023 | 6% |
| Russia | $129.21B | 2023 | 5% |
This is a very good comparison.
Thanks Marco.
Regards
James
This is the view of an economist at a South African bank:
The adminisration is facing what one would call the “near-impossible trinity”. The US wants to balance three key dynamics, which is almost impossible without causing a recession in the US:
- Firstly, rebalance the current account deficit using import tariffs. However, a reduction in the US current account deficit would mean less foreign reserve accumulation and less dollars being recycled back into US treasuries, potentially raising the cost of borrowing and debt servicing costs dramatically and weakening the dollar. At the current pace, debt servicing cost as a percent of total tax revenue is expected to edge past 20% soon. The US bond market has been assessing these dynamics this the past few weeks.
- Secondly, restore fiscal sustainability as reserve accumulation and dollar recycling is likely to slow. If the US is going to run smaller current account deficits, reserve accumulation is also likely to slow and demand for US treasuries will decline. Also, the mere fact that high tariffs are imposed on countries such as China, may incentivise the countries to channel their reserve accumulation into other currencies such as the euro, or gold, irrespective of whether the tariffs are successful or not. This implies the US needs to cut back aggressively on government expenditure (DOGE comes to mind), alongside raising more revenue from tariffs to reduce the government financing requirement.
- Lastly, keep inflation at bay in the face of high import tariffs, to provide room for the US Fed to ease monetary policy if necessary. Declining economic confidence, alongside a decline in government spending and a decline in the US consumer spending (because of import tariffs), will become a drag on the US economy.
Ultimately, at least one of the three will have to give to avoid a recession, and it will most likely be steep tariffs on most countries that disappear first
Trump is thinking like a CEO managing a huge business, not a consumer, and not like a politician. He also has a USA first policy.
What does that mean?
He wants the people of the USA to make a greater share of the worlds money.
Tariffs
But it comes at the expense of higher prices which means that people can afford less. Trump is hoping that giving some of that tariff money back plus the extra income for the average US citizen will be enough to offset the higher prices.
Of course his strategy comes with downsides (especially short-term pain) and risks (political) which you know.
Is it worth it?
Chipper,
Trump has never managed a huge corporation in his lifetime. Trump Org is a relatively small family size business. If I remember correctly, his business has been declared bankruptcy at least 5 different times during the 80's to early 2000. (including running a casino business to the ground)
What Trump is doing to the US economy is more than trying to get ppl to buy more goods make in US but forcing companies to suddenly shift manufacturing lines that takes years to setup overseas in low cost manufacturing countries by using high tariffs which are ultimately paid by US importers and passed down to the US citizen. He declared reciporal tariffs on goods from over 150 countries with a formula that most economists say doesnt even make sense.
Jamie Dimon, the CEO of JP Morgan said on Mon said that the best scenario for US this year is a recession if the global tariffs continues. There is a chance that Trump may end up tanking both the stock and bond market and taking the US economy and the whole world into a deep recession.
Regards
James
I'm not in favor of tariffs. I am certainly not in favor of bedlam and making enemies. But his plan is a lot more sensible than you think. Even if that doesn't mean it's a good idea.
Also, he doesn't communicate in ways that you understand, and he doesn't act in ways that conform with conventions. Is that a reason to attack him? Maybe. But some people's talking points are coming from those who would be against everything Trump does no matter what.
I try to keep an open mind. That doesn't mean I have to agree.
Chipper,
I guess I cannot agree that the reciprocal tariffs to the rest of the world - more than150 countries are sensible whether they are negotiating tactics or not.
But I agree that everyone is entitled to their view of the current US administration.
Thanks again for your sharing your view.
By the way, if you haven't check out the video by Brian Tyler Cohen above yet (which opens this discussion.)
Pls kindly do so.
Regards
James
Yes — and more. This is also like a game of poker — high-stakes poker. And in a real game, it would be foolish to take anything your opponent says at face value. You’re allowed to look someone in the eye and say, “I have pocket aces — if you raise, I’m going all in.” The other player’s job is to figure out whether it’s a bluff.
We may wish it were otherwise, and we can debate whether he’s playing the game well. But we should at least recognize it for what it is: a game in the game-theory sense.
The name for this kind of strategy is brinkmanship , I believe. Kennedy used brinkmanship during the Cuban Missile Crisis . It didn’t feel great then either — I remember “helping” my family dig a makeshift fallout shelter — and people are still writing about it in game theory texts. It’s a dangerous game for both sides.
But that’s the whole point of brinkmanship: to scare the other side. To bring both parties to the brink of disaster — and force the other to be the one who backs down.
I’m not loving how it’s going right now, and I have no way of knowing who will “win” this game — but if we’re going to analyze it, we should at least call it what it is. And by the way, we still don’t know how it will turn out.
Jim,
Thanks for finally deciding to join in the discussion.
I am not sure whether using the US stock market and the US/ Global economy and the livelihood of the average American to gamble and play poker with the world makes a good US President (just the first 100 days in office).
Pls also let us know your thoughts with your knowledge of the game theory whether his call to Annex Greenland, 51st state and use troops in Panama Canal are just bluffing or blackmailing/threatening other countries like Canada and the European Union and also China.
Thanks again for your reply in advance.
Regards
James
If we keep the focus on investing—not how to vote in the midterms—I see this as a game-theory scenario that will resolve itself one way or another. It’s similar, though far less serious, than the game that played out during the Cuban Missile Crisis.
With that in mind (and staying on topic), I’m not making the slightest change to my algorithms — some of which already adapted to changes in asset volatility. Some volatility shifts have occurred due to recent events, but that’s handled by an existing process. There’s no need for me to speculate on how this will play out.
Possibly relevant, per ChatGPT: During the Cuban Missile Crisis in October 1962, the U.S. stock market experienced a short-term decline followed by a sharp recovery (regaining earlier losses and moving to new highs) once the immediate threat of nuclear war began to subside.
Thanks Doctor. That's right.
From an investing point of view, remember that he can (and does) change tactics at any time. He does care about the economy and the stock market. Also, keep in mind that he is crazy. Crazy like a fox (no pun intended). But also very shrewd at the same time in certain ways.
I didn't say that I like his plan or his tactics.
But it is a plan and his tactics worked for him for many years.
P.S. China has more business (exports to the USA) to lose than the USA (exports to China).
These two updates from CNN and Reuters just came in.
I am sure Trump does care the self-inflicted pain he is causing the the stock market. (The market is at all time high just a few months ago).
China is exhibiting ‘end-of-regime conduct,’ expert warns of ‘perplexing’ behavior
I understand that you work at your residence and probably without access to Bloomberg or Reuters.
Pls don't quote FOX.
Are you going to quote Newsmax next?
No personal attacks please.
Don't quote Newsmax
It is utter madness to advocate for tariffs on the basis of eliminating the "evil trade deficit." Trade deficits are neither bad nor good, they are simply facts of life in a world where countries have diverse wealth profiles. The US having trade deficits with other countries means ONLY that the US is wealthier.
In fact, the US is the wealthiest country in the history of civilization. It is only natural and expected that it's citizens would buy more goods from the world than the world buys from us. Somebody should sit Trump down and explain that a trade deficit is NOT the same as a personal or business deficit. On the contrary, it is a marker of the US' outstanding success based on the principles of its 249-year old constitution.
Should we somehow also manipulate the price of houses because a fireman cannot afford the same 5-bedroom mansion as the CEO of a successful public corporation? Is that fireman, doing the worthwhile life's work he chose for himself, experiencing a "housing deficit" that must be resolved by government intervention?
Mercantilism and trade manipulation has always been a go-to of extreme far-left and communist regimes. That a president with an 'R' beside his name would take them up as his cause du jour says more about Mr. Trump's lack of understanding about economics than anything else. After all, he did fail at nearly every one of the businesses he ever launched. Time Article
The United State's policies on taxes (which is what tariffs are) were established within the purview of Congress by the US Constitution. Yet somehow, Trump has been able to hijack that power by declaring a nonexistent emergency. I ask you, where were all the headlines decrying the horrible trade imbalances that were ruining everyday American's lives before January 20th?
I personally don't recall Americans demanding that a new $6 trillion tax be assessed on their everyday purchases, do you? The US has not been a power in worldwide manufacturing since the 1950s. The US, as a mature economy, will never be able to compete with low-wage emerging economies for manufacturing supremacy. Today, the US is a service economy, and I don't think anyone (except maybe undocumented immigrants) are hankering for the jobs at the new factories that won't be built.
Why would any business executive sign off on the building of an expensive new factory, that takes years to fund and build, when the entire tariff fiasco will go away in four years under a new administration?
In my opinion, this entire economic malfeasance is one of the worst examples of national self-harm in history. Mr. Trump is single-handedly destroying the US economy, which was truly the envy of the world when he inherited it only a few months ago.
