In Washington, and in reality everywhere else, the number one conversation is tariffs particularly with China. Who is talking to who and how long will it take to reach a deal? While administration press people say the President is talking to 200 countries, in reality a trade deal takes time. In the President’ first term – an agreement between US, Mexico and Canada (who are generally considered good partners) took 18 months. NAFTA was replaced by USMCA and signed by President Trump.

The global trade has evolved to what it was before President Trump signed the tariffs over 80 years and millions of people around the world moved from subsistence farming towards what is middle income in their countries. Under those conditions, it has been a success. Over the same period, the US economy moved from manufacturing to services and consumerism, with a small part of the economy related to manufacturing. Most people work in services including financial, tech, or retail and about 2/3’s of the US economy is related to buying goods or consumer shopping.

The global economy allowed China to start with relatively cheap goods and over the past decades the institutions of China now turnout extremely qualified individuals that can solve problems. Apple CEO Tim Cook said for his manufacturing needs, in the US he could fill a classroom, in China he can fill football fields. The post-secondary institutions in China are turning out great graduates.

All companies in the world, do not want to be dependent too much on others. President Trump has tapped into this dependence and all over the world people agree with the sentiment. However, it is debatable without trillion of dollars, the US would become independent.

Then you have China. David Rosenberg wrote in 2017 22% of goods imported in the US came from China. Today that number is 13%. This is due to a number of factors including sending their goods to a third country before they reach the US. It also due to the Belt and Road initiative which Chinese investment in infrastructure to countries around the world also means they receive Chinese goods.

China has options, the value of direct Chinese exports to the US in 2024 was about the same as it was in 2013. Meanwhile, the value of China’ exports to the EU has soared or China has diversified.

President Trump talk about shipping LNG, there was a huge market in China of 9.3 million tons and now it is near zero. This does not make Texans happy. Beijing is buying its LNG or gas purchases from the Middle East and Asia-Pacific countries.

Last week, China cancelled soybeans purchases from the US and bought from Brazil. Now only is China’s the US largest customer for soybeans, the backstop USAid used to buy surplus crops to send them overseas, the President through DOGE stopped it. Soybeans futures are down.

China not only mines most of the rare earth minerals that go into silicon chips, it processes the metal in China too.

In an article by Ana Swanson and Jonathan Swan of the New York Times News Service, the issue of who is talking to China was explored. The Treasury Secretary said he was talking to China about financial concerns but not tariffs. President Trump claims of talks have been rejected by Chinese officials from China’s Commerce Ministry. Any claims about progress in China-US economic and trade negotiations are baseless rumors without factual evidence.

What we do know is shipping container traffic at the business ports in Long Beach are down 60% which means less stuff is being shipped across the Pacific. Retailers are examining the 145% tariffs and looking at doubling prices, how much will people buy when prices are doubled?

Trump official have admitted the status quo with China on trade is not sustainable, and some have wanted lower tariffs. The White House insists it will not do that unless a deal is reached for China to do the same.

In the meantime, after 80 years of global supply system, on Wall Street as public companies give their quarterly and annual reports, fewer are giving guidance of what to expect in the next 3 months.

Linking to dividend paying stocks, not all companies will be affected by the tariffs, at least directly. In many industries, they bring in parts from around the world to produce a good and sell it, they will be affected. Many parts come from abroad and when something breaks down or needs replacing, an added and expensive delay will result. (a very small example, is I bought a bicycle from a national retail chain during Boxing Week Sales to ride it when the snow was gone. The back tire was bent and needed a new one, it took 3 months. Fortunately, most of the time the weather did not allow for it to be ridden). The tariffs will affect companies indirectly for example, banks lend money to people to do things. If they are not buying but saving, they make less money. If people are laid off collection dates go up as bills are paid on the last minute or late. There will be companies making money because of large moats and near monopolies, hopefully you have them in your portfolio.

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