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Trade Wars? Unlikely!

Around this time of year, I used to write my blog about Oscar predictions. However last week's announcement by Trump and unknown Oscar lineup promoted me to write about something which has been brewing since Trump started campaign and finally coming to reality.
What did Trump announced? He announced that US is considering putting tariffs on Steel and Aluminum imports. As definition, tariff is tax or duty to be paid on specific item. Before globalization, every country used to put tariffs for many reasons but most importantly for protecting domestic industry. US was major proponent of Globalization and worked/pushed countries/unions to remove tariffs. NAFTA is an excellent example where 3 North American countries (USA, Canada and Mexico) act as tariff less union. It's good concept as long as there is balance in imports and exports among countries. However over last 2-3 decades, it has been mostly one sided equation in which US imports vast amount of goods compared to exports adding to "trade deficit". Trump claims that it is costing millions of American Jobs especially in manufacturing sector (which also happens to be his base). While there is some truth to this, any economist would say that tariff is not a solution for it. Obviously economists and politicians are from two different planets. And Trump being Trump, he likes to shoot first and then ask questions. However this should not come as surprise to anyone since Trump has been saying this since he started his campaign.
So what's really going to happen? Are we back to pre-WTO world where each country would try to reciprocate with its own set of tariffs. While they may act with some symbolic gestures, no one can afford to be an island in sea of Globalization. Even tariffs Trump is proposing would have very small impact on economy or jobs. It's more of political gimmick than real economic policy change. Hopefully wise heads would prevail in EU and China/Japan not to react to Trump's threats with reciprocal actions since their countries have more to lose if real "Trade Wars" start. And given Trump's penchant to take on fights, it's better not to give him that chance (He has already threatened to put tariffs on cars if EU retaliates). Markets would digest all of these over next few weeks and come back to normal. So full blown trade wars are highly unlikely and hence markets would discount this small hiccup and come back to normals. Just as side note, biggest exports US have is "greenbacks" (aka dollars) and "treasuries". However all that need is a printing press!
Now it's time to make predictions for top 4 Oscar categories.

  • Best Picture: The Shape of Water
  • Director: Guillermo del Toro, ā€œThe Shape of Water,ā€ 
  • Lead Actor: Daniel Day-Lewis, ā€œPhantom Threadā€ - This would be 4th and last one since he is "retiring" from acting!
  • Lead Actress: Sally Hawkins, ā€œThe Shape of Waterā€
Unfortunately I had not seen any of the above mentioned movies yet so my predictions are based on "data gathering" from various articles I have read. Let's see how good my predictive analytics skills are!
And one more thing - Trump being man of action can really take the Florida high-school shooting incident and change the "gun control" debate forever by doing something good (and going against NRA for once). It will help change narrative of his presidency forever!
/Shyam

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