When a person sees the US trade deficit at its highest level since 2008 as reported by Lucia Mutikani of Reuters it is easy to believe the President is correct in imposing tariffs on China. Although in this case what looks easy is actually much more complicated and that is the problem with the President and tariffs. Tariffs and politics have always been intertwined for most countries in the world, if the consuming broad middle income buy more goods and services that originate in the host country, that will stimulate the local, regional and national economies. The choice is to buy from another country.

If you go back to the start of the US, the big exporter of goods was Britain and Europe. In more recent times, the global supply chains believed China could make basic items and the cost to import them would still be much cheaper than to make it domestically. If you go into a dollar store or Wal-mart or many other department stores you will see the items are made outside of the US. The same thing with your phones, consider Apple which prided itself for many years as having no production facilities in the US. The software was designed and continues to be designed in the US, but production is done in Asia. This leads to a trade war – to change the trade deficit more production needs to be done in the US and do you believe it will happen.

In terms of the US and China tariffs, China will target items that fall in President Trump’s base of political support. By targeting those items, the idea is to push the price up to be less competitive which can bring in alternative suppliers.  Who do you believe will  blink first? In the meantime, the stock market will be prone to fluctuate.

Linking to dividend paying stocks, many of these companies have embraced the supply chains that exist and have benefited from it. For the President to win, some of the companies will have to change and knowing people do not like to change, companies also do not like like to change a winning formula. The good news is many dividend paying companies have been earning profits and paying dividends for years and will be able to manage their way through the maze. It may mean some of the money the President gave corporations by reducing their taxes they will set up one production facility or upgrade one, but keep the other aspects of the supply chain very healthy.

There are more questions than answers, till the next time – to raising questions.