Could This Trade Threat Actually Be Recessionary?
Trade seems to be the topic of the week as Axios reports Trump privately mentioning that he may want to leave the WTO, which would upend a 70+ year old institution representing trillions of dollars of trade. Additionally, tariffs on the auto industry could affect millions of U.S. jobs in the auto sector. Read on to get all the details.
Eyeing Auto Tariffs – As the Trump administration considers levying tariffs on European car imports, the European Commission is already weighing a retaliatory response. They have signaled counter-tariffs to the tune of $294B, which represents about 19% of U.S. goods exports in 2017. Tariffs today, that the U.S. has actually implemented, stand at around $85 billion, but adding the European car market to the mix would mark a substantial step-up in the trade war and could affect the 4 million U.S. jobs in the auto sector. BMW, for instance, could respond by reducing its American investment and jobs, given the large number of cars it exports from its South Carolina plant. General Motors also warned this week that a full-scale tariff battle with European automakers could force the company to scale back its business.1
Side Deal with the Saudis? – crude oil prices have been in the spotlight lately, particularly as the Trump administration moves to reinstate stiff sanctions on Iran. Doing so could impact supply, which is why markets were slightly caught off guard when President Trump announced a potential side deal with the Saudis – whereby they would potentially increase output by up to 2 million barrels per day. OPEC had just announced a lesser output increase, which left many market participants wondering which version of the announcement to correct.2
Retail Apocalypse, Continued — Target announced this week their intent to add automatic cash-counting machines to its nearly 2,000 stores starting this summer. Walmart had already made a similar announcement, which means that in many stores there will likely be fewer clerks – until perhaps there are none. The gray machines – known as cash recyclers – count bills and coins quickly, allowing stores to digitally bank their cash. Clerks will likely be assigned other jobs versus losing their jobs outright.3 Meanwhile, at the shopping malls, vacancy rates hit 8.6% vs. 9.4% in the third quarter of 2011. Strip malls and community shopping centers were even worse, at a 10.2% vacancy.4
A Trade Threat That Could Actually be Recessionary – China tariffs and potential European automaker tariffs aside, there is a bigger, more substantial trade threat that we would actually see as recession. According to a report by Axios, President Trump privately talks to White House officials about wanting to leave the WTO, which would upend a 70+ year old institution representing trillions of dollars of trade. Such a move could unravel the global trade order and would almost certainly change our calculus on trade completely. That being said, the move appears for now highly unlikely. While international law says that Trump alone could notify the WTO of the United States’ withdrawal, U.S. law states that withdrawal from the WTO requires an act of Congress. Too many Congressional Republicans are free trade/free market advocates for withdrawal to become a reality, in our view.5
Happy 4th of July! This summer, it is estimated that over 216 million Americans celebrated 4th of July, spending about $6.9 billion in the single day on food and beverage. That’s a lot of beer and hot dogs, but actually does not even meet last year’s record of $7.1 billion, according to the National Retail Federation. Reasons for the decline may include prices at the pump and the fact that the holiday fell on a Wednesday.6
As we close a holiday week, this week sadly gave us more negative headlines than positive ones, from tariffs on the auto industry to whisperings of Trump wanting to leave the WTO. These stories leave many investors with more unanswered questions about where the market is headed than answered. But, while we cannot predict the short term, the right investment strategy can make an enormous difference over the long haul.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.7 Our Dean’s List describes five of our top investment strategies. If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could benefit you.
2 CNBC, June 30, 2018, https://www.cnbc.com/2018/06/30/oil-deal-may-stir-the-pot-in-the-middle-east-and-test-saudi-capacity.html
3 Seeking Alpha, July 2, 2018, https://seekingalpha.com/news/3367319-target-install-cash-counting-machines
4 MarketWatch, July 2, 2018, https://www.marketwatch.com/story/malls-emptier-as-vacancy-rate-hits-6-year-high-2018-07-02
5 Axios, June 29, 2018, https://www.axios.com/trump-threat-withdraw-wto-world-trade-organization-f6ca180e-47d6-42aa-a3a3-f3228e97d715.html
6 National Retail Federation, July 6, 2018, https://nrf.com/resources/consumer-research-and-data/holiday-spending/independence-day
7 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
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