It would be a yuuuge understatement to say that newly elected President Donald J. Trump is controversial. And it would not be an understatement to say that a great deal of the noise and clamor is nine parts theater to one part substance. Contributing to the substance part is the issue of free trade.

President Trump says that he thinks the United States has done some bad deals with trade agreements — that all the other countries we’ve negotiated with have profited much more than we have and it’s time to fix that. He says we need to renegotiate NAFTA and probably put some large scale tariffs in place when it comes to foreign imports from a lot of places…but mostly China. And the Trans-Pacific Partnership? Fugeddaboutit!

Here’s the problem: Most economists tend to think that free trade really does end up helping much more than hurting. And not just a few businesses, or a few people, but almost everybody.

Of course the subject can be complicated. Indeed, many politicians have moderated their positions over time. Secretary of State Clinton vigorously supported the TPP but presidential candidate Hillary vigorously opposed it.

Free trade, unarguably, does generate harm. As markets shift, different contributors to the balance of supply and demand will be affected differently: Some will profit and some will suffer.

What makes it difficult in determining the net effect is that, in many cases, the hurt comes now and the benefit later. This is why the free trade discussion can be a powerful one in the realm of politics. Those who may suffer may not be great in number but they are easily identified and they are very vocal about their plight. When you watch the news and see stories about a town just folding up, who cannot be moved by that? On the other end, the benefits of free trade include more goods at better prices for millions of consumers — but that happens more slowly and is way less dramatic. Those reaping most of the benefits are not terribly aware that it even is happening. Financial writer Roger Lowenstein, writing in January’s Fortune Magazine put the subject in a good perspective:

In reality, protecting America from China makes no more sense than protecting Ohio from Indiana, or protecting Barnes & Noble from Silicon Valley, or protecting any industry from the lower costs delivered through greater efficiencies, including through automation. It’s understandable that voters are slow to grasp the fact. The benefits of trade are dispersed and appreciable only over time. They also are significant. Imagine how depressed the citizens of Ohio, or of any state, would become in 20 years if its citizens could buy only products manufactured in-state, and never trade with people in other states or other lands. Insulation would lead to isolation, depressing not only their economy but also their civilization.

Market Minute 3/3/2017 – ‘The Times, They Are A Changin’ – B. Dylan

We’ve talked about bond yields on and off for some time now. Usually we’ve mentioned the low interest rates on longer US Treasuries, but today my concern is with the shorter duration bonds. This past week the 2-year US Treasury climbed above 1.3%- for the first time in seven years! The shorter term yield is more sensitive to potential rate hikes than longer treasuries so, this suggests that fixed income traders are taking the potential for a rise in Fed rates this month more seriously.

How does this affect you?

We have been in a bond ‘bull market’ for over 35 years. As interest rates have decreased the values of traditional bonds — and bond funds — have increased. It has been a no-brainer. However as we (and the rest of the commentators) have been saying, it appears that finally the bull run in bonds is coming to an end. Traditional bonds and bond funds will begin to experience losses. It’s time to have a good look at your bond holdings. Most investors have a portion of their portfolios in bonds of some sort. How will the changes in the bond world affect you?

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

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