Trump’s antics
When Trump was elected US president in 2017 most people (like myself) thought it would be bad for the share market. However I was wrong and during his presidency the All Ords rose from about 5,500 to about 7000 – which (despite the COVID panic and subsequent meltdown during that period), was a 27% rise. Since then it reached a high of about 8800 and I rejoiced as my shares nest egg rose to new heights. As Trump was elected this year I imagined it would be good for the market – that is until he announced his widespread tariffs.
Unless you’ve been living under a rock, you’ll know that this caused the market to tank in a similar fashion to the COVID meltdown in 2020. I watched in disbelief and dismay as the market fell back to 7600 (a fall of about 14%) and my share portfolio fell in step with the market fall.
Anyone who knows anything about economics believes that tariffs don’t work. Not only is this economic theory but it’s also been proven over many years when tariffs have been tried as an economic weapon. The reasons for this are:
- As a general rule a country will provide for itself and be self-sufficient as far as possible. Countries simply don’t import when they don’t need to.
- When a country does import it does so for good reasons.
These are:
- It cannot supply its own needs. For example the only significant source of bananas in the US is Hawaii which can supply only about 10% of the demand for bananas. So the demand is filled by the importing bananas from Guatemala. Similarly many commodities require a great amount of specialised knowledge, machinery or labour that a country doesn’t have and so needs to import.
- It makes economic sense to import. For example in the US wages are much higher than in many other countries so if a large amount of labour is required, the product is much more expensive when labour is provided by US workers. Cutting and packing bananas is very labour intensive so even if the US could suddenly grow all the bananas it needs, they would be much more expensive than imported ones.
So in most cases tariffs on imported goods are ineffective because of these two reasons. Almost all economists therefore believe that the net result of Trump’s tariffs would be to drive up inflation and cause a shortage of essentials in the US. And as everyone knows ‘when America sneezes, the rest of the world catches a cold’. It was said that Trump had a spine of steel that wouldn’t bend and that he was too proud (or arrogant) to back down from his original convictions despite the effect these could have on the US and world economies.
I have to say that when it comes to Donald Trump I have been wrong every time. When I thought the market would drop, it rose and when I thought it would rise it fell. I was also wrong when I thought there was no way Trump would back down because yesterday (10th April) as I was writing this post, there came the news that Trump was suspending his tariffs for 90 days. He now intends to negotiate with key economies – mainly China, and possibly review his tariffs. The effect of this news was a huge jump of the sharemarket on Wall Street which flowed back to our market. So Trump’s spine of steel proved to be flexible and it appears he is starting to realise the negative effect his tariffs could have on the US economy.
Where to from here?
The only thing certain to come out of all this is that the future under Trump is one of uncertainty. I’ve been wrong every time I tried to predict what he might do and what the resulting effect could be so I’ve decided I won’t do this anymore. I’m simply going with the flow like flotsam on the tide. I won’t let Trump’s actions or the fluctuations in world markets spur me to action. In other words I’m simply going to sit tight on my existing portfolio and do nothing until world economies stabilise again and some sanity and order returns to sharemarkets.