Tariffs have been used by every country in the world in order to ensure economic activity is done in the country. The difference with President Trump is he loves using them or threatening for across the board issues. He also expects tariffs will reverse 40 years of supply system management in one month. There are valid reasons why the supply system has built the way it has and tariffs will likely not change the system. It can affect at the margins, both margins for companies and at the edges, however decisions are rarely simple, they are complex. We will see how permanent, the tariffs are.

In an article by Timothy Gardner and Marianna Parraga of Reuters, the President has many tools in his tool kit and President Trump signed an Executive Order based on the 1977 International Emergency Economic Powers Act authorizing his administration to impose 25% tariffs on imports from any country that buys Venezuelan crude oil and liquid fuels.

There are a number of issues with Executive Orders, the government has to prove in court that there is an emergency, although going through court takes time. The other issue there are refineries in Houston area that are designed to refine heavy tar sand oil. Most of the oil comes from Canada, but with the tariffs of Canada, the next logical step in heavy tar sand oil from Venezuela.

Fernando Ferreira, director of consultant Rapidan Energy’s geopolitical risk service, said assuming it withstands litigation, I can see this becoming an attractive option for the Trump administration to exert pressure on US adversaries in addition to traditional sanctions.

China is the biggest buyer of Venezuelan crude with 55% of its exports or 500,000 barrels a day. The crude tends to go through Malaysia or becomes Malaysia crude.

Both Venezuela and China slammed the US government for flagrantly violates international trade rules. Although the World Court moves at a slower pace than courts in the US, countries have the option of going there. The other aspect is if the US imposes tariffs, the country has the ability to impose tariffs on American goods. Besides higher prices who wins?

Linking to dividend paying stocks, capital allocation is based on reasonable stability but to do the investment and for the investment to pay off. This is when the priorities of the government and the priorities of the company do not align up and companies will announce future investments but do little because there is no stability the rules will stay in place for any length of time.

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