Trump’s flawed reasoning
Trump’s flawed reasoning Written April 2025
It’s interesting to consider that the current turmoil in world sharemarkets is based on flawed reasoning. What has driven Trump to impose tariffs on its imports is Trump’s belief that other nations in the world have been ‘ripping off’ America and that this has to stop.
In fact it’s the other way around. America has been ‘ripping off’ the poorer economies in the world for a long time. It all started when the cotton plantations sprung up in America and they required heaps of human labour. And where did this labour come from? Why America obtained the labour they needed by sending ships to the poorer countries in the world and press-ganging people who could offer very little resistance, They were brought back to America and traded as slaves. They were forced to work long hours on plantations 7 days a week with no pay, they were fed basic rations just enough to support life and lived in shanty’s which provided just enough shelter to protect them from the elements. Most died at an early age from the privations and hardships. If they tried to escape these cruel conditions they were usually caught and hanged as a deterrent to others.
In other words America exploited other countries simply because they had the might – using the principle ‘might is right’. Later on as America became wealthier and the population increased it was able to take advantage of its superior technology and purchasing power to dictate the terms and conditions when dealing with other poorer countries. And that’s basically the situation today – if you want to deal with America you pretty much have to abide with the prices and conditions they are able to dictate. Nowadays when America imports it does so because it’s advantageous to the US and for no other reason. And when America helps another country it’s because they get some strategic advantage by doing so. They don’t do it for any altruistic motive, if they didn’t get this advantage they simply wouldn’t do it.
So there’s no ‘ripping off’ of America by other nations, it’s simply good business practice for them.
The trade wars initiated when Trump imposed tariffs on its imports are still based on the ‘might is right’ concept as Trump seems to believe he can do what he likes and that other nations will have to toe the line. Again this is flawed reasoning, other nations aren’t going to take it lying down, and already many nations have initiated retaliatory moves. In particular China which is one of the key US trading partners has the muscle power to retaliate and they are doing so.
So as other countries retaliate, US consumers face rising prices or shortages of essential good and merchandise that cannot be sourced elsewhere. The inevitable result of these rising prices and shortages is that the US economy faces a recession. The uncertainty and fear of a recession in the US has caused sharemarkets throughout the world to be very jittery. Investors don’t like uncertainty and have indicated this by dumping shares in favour of more certain investments. The US dollar – once a stronghold is also on the cusp of a bear market.
I believe that Trump’s strategy could well be to hit hard to force other nations to the negotiating table. Then he can afford to ‘give back’ some of what he proposed to take in the first place and so get a better deal for America. He then appears to have the persona of the ‘good guy’ who’s a reasonable leader and prepared to negotiate.
Where this will all end up no one knows. One thing is certain – Trump doesn’t want to go down in history as the president who caused a recession and economic misery in the US. In fact quite the opposite – his huge ego drives him to want to be regarded as the ‘best’ president the US ever had.
So I’d like to believe that in the end sanity will win the day and Trump will be forced to back down on many of his threats and come to a reasonable position with other world nations.
In the meanwhile, as an Australian sharemarket investor I suggest you adopt a very conservative approach while at the same time taking advantage of any upward moves in the market. In the last 3 months or so our market had dropped from a peak of about 8,800 to low of about 7600 but has now recovered to about 8,200 as I write. I have no doubt that our market will move back up and surpass the 8,800 level, but how long this will take no one knows. But it will do this and Trump’s antics will be seen as a ‘blip’ – albeit a big one in the history of the Australian market.