Why tariffs to begin with?
Whenever looking to understand a complex situation, we need to look at both sides of the argument. In market analysis, there is always a bull and bear case. If you analyze with only bull, or bear glasses – you are missing the whole picture.
I often cite the Lance Armstrong case, where he was the “doping bad-man”, made out to be the biggest cheater in sports history. What the media didnt tell you is that the yellow winners jersey couldn’t be awarded to the next man down, or the next, or the next, etc. – because the use of drugs was prevalent in the peloton at the time! Yet, Lance was ostracized as “the cheater”. I used to tell people I liked Lance as an athlete, and people thought I was crazy for liking “the drug cheat”. The fact was, something like 90%++ of the peloton was doping – he was literally not cheating any more than the rest of the group. The media had manipulated the public yet again, by failing to report the entire picture. So, the notes below may intrigue those who like to look at the other side.
To start, I am not a fan of the degree of tariffs the USA has imposed on Canada. However, perhaps as Canadians, we need to put our elbows down for a moment and hear the other side of the tariff argument. Why are tariffs going up? As you guys know, I have been a long advocate of contra-the-crowd thinking. When “everyone” is suddenly flying flags (when they haven’t done so in the past) and talking “Bad-man Orange”, with little examination outside of that crowd-think, should we perhaps look at the other side?
I recently read an interview with Trumps Head of Economic Advisory Council, Stephen Miran. A summary:
Miran’s tariff policy advice to the President was based on history. Tariffs were set very low by the USA in the post-WWII and Cold War eras. Back then the USA wanted to enable reconstruction and economic strength in countries outside of Russia. It accomplished this with favorable trade policies.
As Miran explains, the tariffs on nations by the USA were set in a “different economic age”. The World Trade Organization (WTO) reports that the USA applies an average of 3.4% tariffs on imports which is the lowest in the world. By comparison, Canada is at 6.6%, China is at 10%, and other countries such as Brazil are much higher. As Miran puts it, these are “asymmetrical trade conditions” unfavorable/unfair to US exports. As the worlds largest economy, it would seem illogical to accept an economic disadvantage, given the progress in world economies since the prior era of reconstruction.
So there you have it. Again, I’m not endorsing anything here, but the interview with Miran did help me understand why these negotiations happened to begin with.
In the meantime–expect volatility as the tariff legality move through the courts.
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