Trump and Tariffs: Where does this lead?

Bryson

POSTED BY

Bryson Milley

Financial Advisor, Director

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Having now crossed the half-way mark of 2018, it is interesting to look back at the first 6 months in an effort to gain perspective of what the rest of the year may bring. For me, from a financial perspective, the first half of this year has been dominated by President Trump’s economic policies… specifically tariffs.

My university years were filled with international trade and finance courses… lots of geopolitics and economics. From those courses, I learned that poor international relations generally lead to bad things. At their worst, they can lead to armed disputes, but normally they lead to less cooperation, less economic growth, and a general decrease in efficiency for all involved. And the great irony is that the instigator usually finds themselves worse off than before!

Let me share this analogy. You have been using a dry-cleaning company for years, and the service has been okay. But, the real advantage is location… they are close, and easy to get to/from. Out of the blue, the owner begins making comments that he may begin charging more because he feels he does a better job than his competition. There is not any factual evidence, he just believes in his mind that he is better.

This rhetoric continues for a few weeks, and one day there is a sign on the door… he has increased his prices by 25%. You “plug your nose” and drop-off your cleaning. When you arrive a couple days later to pick-up your dry-cleaning, you are presented with an attitude that you should be honoured to do business with them. Needless to say, this does not feel good.

A week later, you drop off your clothes at the usual spot only because of the convenience. But again, on pick-up, you leave feeling belittled.

Later, you notice another dry-cleaner only a little further from your home, and the next time you vow to give them a try. When you do, you find their service and demeanor is welcoming, they thank you for your business, they charge the same as what you had originally paid and the finished product is just as good. No surprise, you are no longer a customer of your original dry-cleaners.

While the original dry-cleaner may see more revenue per customer for a while, soon the number of lost customers outweigh the increased revenue per customer, and the business struggles.

While this analogy is a very micro-economic story, the principle also applies to the macro-economic/international scale. History has proven that widespread tariffs only ever slow economic growth, and the instigator generally bares the brunt of the downturn. The real irony is the victims are their own citizens.

I share this because I believe if the tariff battle continues, the US is likely to fall into a recession. President Trump seems to be convinced that the short-term pain will be worth a long-term gain, but history does not share this view. I do not believe President Trump will come off his tariff kick easily and this does not bode well from the North American economy. Does this mean a repeat of 2008? No. But, we will continue to monitor and adjust accordingly.





© 2018 RGF Integrated Wealth Management Ltd. | RGF Wealth Management Ltd., Member - Canadian Investor Protection Fund

Bryson Milley, BA CFP CIM FCSI is a Financial Advisor with RGF Integrated Wealth Management. The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their completeness or accuracy.