President Trump is his wisdom has decided to invoke tariffs or a trade war which the US will lose. The world of supply management is complicated because the dominant players which have tended to be US companies have over the years structured trade to benefit themselves as opposed to the country where they are headquartered. In this fashion, many of the items Wal-mart sells comes from China or offshore. At one time most of the items were from the US, but it shifted.
The domestic auto industry moves between the US, Mexico and Canada. If the main difference is price, the item will typically come from Mexico because labor costs are lower than the US. If the item is related to benefits the item may come from Canada because benefits are lower in Canada as workers do not pay health insurance directly. There are multiple variations. For companies in Europe – both Daimler and BMW have plants in the US to service the US market and to ship to China. According to an article by Edward Taylor of Reuters Daimler’s plant in Alabama and BMW’s plant in Spartanburg, North Carolina face millions of dollars of losses if vehicles they make will not be able to ship or they will earn less money. BMW’s plant is the largest vehicle exporter from the US by value – much of it goes to China. BMW may be able to move some production from Spartanburg to a plant in China to continue servicing the Chinese market.
Trade is complicated and there are no winners just losers for employees and consumers.
Linking to dividend paying stocks, the companies are doing their thing until politics intervenes Sometimes politics is good, sometimes it is useless from the company’s perspective. In past trade disputes, when the next election came along the policies changed, will it be the same with President Trump’s policies?
There are more questions than answers, till the next time – to raising questions.