August 2018 Newsletter

August 2, 2018

“The economy is booming” - so say the President and Vice President of the United States.”  GDP numbers are increasing and maybe we are going to finally return to an average growth rate of 3% and higher. (Remember the 1980’s and 1990’s.)  But the crowd is not rushing in - not yet - and that is good news.  Problems develop when the majority of people begin to believe the market can only go up and jump into investing…so say a number of market observers. 

Being an optimist about the stock market and its potential for helping all Americans build a great future for themselves, I have confidence in the market and its future.  I hear John Templeton’s words from over thirty years ago…about how the future was glorious - and then he would list reasons and numbers for how technology would develop and change the lives of people around the globe.  It’s easy to see how that has been a developing story that continues.

Funny thing about the market - sometimes it moves very fast and a cautious investor loses his opportunity to buy in at a low price for that time in history.  And then it begins to move back and forth, up and down in a trading range, waiting for the next time in history it deserves to make a sustained move upward.  For long term thinkers there is always a new good time to get in once they are committed to staying the course.  You may remember that the S&P 500 hit a peak in January, 2018 and now is within about 2% of that high.  We have been in trading ranges since then - people who bought during the recent six months may be up over 5% short term.

Then there is the Trade War - and somehow I can’t get too concerned about it as I think it contains considerable “Trash Talk” with speculation that knows no boundaries.  I believe much of what people worry about will never happen.  Now we are finally picking up more meaningful facts than the average news program.  What has been called “Free Trade” has not been free trade at all.  We’ll see where this goes, but why can’t we have free trade which would mean no tariffs ever…on anything?  Why wouldn’t that be good for everyone?

I received a paper written by Senior Research Fellow Christine McDaniel called ‘’Ten Things You Need to Know About Tariffs.”  I also reference an article by Professor Boudreaux published in the New York Times in March titled “Trade is Not a Job Killer”. I am listing the 10 points with some additional facts I chose; if you would like the complete papers, just call or e mail and we will forward.

1. Tariffs Often Hurt More American Jobs Than They Protect.

While tariffs designed to protect the domestic steel industry may directly affect 140,000 steel workers, there are approximately 5.4 million workers in steel-consuming manufacturing sectors who will be hurt by higher steel prices as a result.  However, as a percentage of routine job destruction and creation known as “job churn”, the number of American jobs destroyed by trade is minuscule.

2. Tariffs Hurt the Manufacturing Sector.

The job losses in American manufacturing have overwhelmingly come from increased productivity rather than trade competition.  Tariffs can kill American manufacturing jobs by making it relatively cheaper for companies to produce goods in other countries.

3. Tariffs Are a Punitive Tax on American Consumers.

Tariffs raise the prices on goods, like washing machines, cars and trucks. Tariffs force consumers to spend or save less money thereby reducing the amount of money available for businesses to invest in workers or banks to lend.

4. Tariffs Benefit Special Interests.

Trade barriers have historically been one of the dominant ways in which special interests seek government privilege.  Current law prevents the International Trade Commission from considering the overall economic effects of proposed tariffs.  That means that tariff consideration, by default, values the benefits to specific companies or industries more than the costs imposed on the rest of the economy.

5. Tariffs Hurt Investment.

The Solar Energy Industries Association projects that the 30 percent tariffs on solar panels would cancel billions of dollars in investment, weaken demand, and eliminate 23,000 installation jobs in America.

6.   Imports Are a Vital Component in America’s Economy.

Exports and imports are 11.9 percent and 14.7 percent of the US economy, respectively, more than double what they were 50 years ago.  A big part of that trade is in intermediate goods, which are in-between raw materials and final goods.

7. Tariffs Often Result in Retaliation from Trading Partners

8. Trade Deficits Are Not a Justification for Tariffs.

Trade deficit calculations do not include the $4.4 trillion that foreign countries invest in America.  When accounting for that investment, the trade deficit closes.

9. Tariffs Slow Economic Growth.

Average American tariffs fell from almost 60 percent in 1932 to under five percent in 2018.  The International Monetary Fund has found that these types of reductions in trade barriers can “boost productivity and output,” which can, in turn, mean faster rates of economic growth.

10. Tariffs Do Not Promote National Security.

Despite foreign competition, the United States is still a major steel producing nation, and the US military has sufficient access to steel to maintain our national defense.  National security needs accounted for only three percent of US steel shipments in 2015.

Perhaps President Trump is negotiating to get to a cleaner system of “free trade.”  Could “free trade” actually mean no tariffs?

We enjoy hearing from you regarding any of this discussion and, of course, to discuss your accounts and new ideas.  Please call us at 608-514-1044.

 

Sincerely yours,
 

Louise P. Googins, Author, Investment Advisor                      
Karl Kuelthau, Principal, Investment Advisor
Kim Rankin, Accountant
Michael Googins, Administrator
Carson Bieber – Student Intern, UW School of Human Ecology
Logan Donovan – Student Intern, UW School of Human Ecology

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