Up until a little over a week ago, especially if one were listening to President Trump and the Whitehouse folk, getting a useful agreement with China was a near certainty, right up until the moment when it wasn’t. Seems that the Chinese negotiators were not willing to pledge in writing what they had agreed to verbally, specifically verifications of adherence to the disclosures and commitments being made. Their position was essentially, “You can trust us so we don’t need to put promises in writing.” One could argue, I suppose, that the sticking point is a cultural difference between East and West involving face-saving and all that. While that may have something to do with it, it is more likely that both sides are still moving the chess pieces around the board and both sides believe they are protecting the long-term interests of their respective countries. It may show up a day late and a dollar short…but there will be a deal because both sides need one. Meanwhile, the noise surrounding the whole thing may be a bit overblown.

Brett Arends has a good piece at Marketwatch.com this week where he looks at some actual tariff impact and comes away less than tarrified. You can read his article at https://www.marketwatch.com/story/the-media-is-lying-to-you-about-trumps-china-tariffs-2019-05-14?mod=mw_latestnews but, here are some highlights:

“Uncle Sam benefits

Yes, tariffs are “costs.” But they do not somehow destroy our money. They do not take our hard-earned dollars and burn them in a big pile. Tariffs are simply federal taxes. That’s it. The extra costs paid by importers, and consumers, goes to Uncle Sam, to distribute as he sees fit, including, for example, on Obamacare subsidies.

It wasn’t long ago the media was complaining because Trump was cutting taxes. Now it’s complaining he’s raising them. Confused? Me too.

And the amounts involved are trivial. Chicken feed.

President Trump just hiked tariffs from 10% to 25% on about $200 billion in Chinese imports. In other words, he just raised taxes by … $30 billion a year.

Oh, no!

The total amount we all paid in taxes last year — federal, state and local — was $5.51 trillion. This tax increase that has everyone’s panties in a twist is a rounding error.”

” Investors panic needlessly

Meanwhile, the total value wiped off U.S. stocks during Monday’s panic was about $700 billion. More than 20 years’ worth of the new tariffs.

Even if Trump slapped 25% taxes on all Chinese imports, it would come to a tax hike of … $135 billion a year. U.S. gross domestic product (GDP) last year: $20.5 trillion.

So even this supposedly scary “escalation” of this “tariff war” would, er, raise our total tax bill from 26.9% of GDP all the way to 27.5% of GDP.”

Brett agrees with our earlier point: that the whole thing is still in play:

“The tariffs are simply a means to an end. The president is trying to get China to start buying more of our stuff. He knows the so-called Middle Kingdom, which now has the second-biggest economy in the world, responds to incentives more than to nice words. These tariffs give China an incentive to open up.

OK, so China’s first reaction is just to retaliate. Big deal. That’s just posturing.

Right now we export less to China than we do to Japan, South Korea and Singapore put together. That’s the point. So the effect of China’s new tariffs on the U.S. are yet another rounding error. Even if China banned all imports from the U.S., that would amount to only 0.6% of our gross domestic product. And we’d sell the stuff somewhere else.

Don’t buy the hysteria. President Trump is simply trying to pressure our biggest competitor to buy more American goods. That should be a good thing, even if you don’t like him.”

Ron’s Market Minute – Fence Sitting

Markets are pretty much undecided this morning. Not really a surprise as the tariff thing is still causing concern. Meanwhile our two-handed economist notes with satisfaction the new Index of Consumer Sentiment surged to a fifteen-year high. The highly regarded University of Michigan survey indicated Consumer Expectations to come up to a level last seen in 2004. It should be noted that the survey was completed before the Chinese tariff talks soured but still it’s pretty good news for our consumer-driven economy. We’ve had four days in a row of upward movement and the S&P is hovering within 3% of its all-time high, so hugging the flat line today would not be too worrisome a thing.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
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www.denkinvest.com

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