Tariff Man Strikes Back

Good Morning,
Last week was supposed to be all about the Federal Reserve, but the interest rate cut played second fiddle to the return of Tariff Man. On Thursday, President Trump announced that the government was imposing more tariffs on China. CNBC wrote an article that covered this topic along with a summary of the week. A couple of statements that stood out from the article were;
  1. The S&P 500 (biggest US companies) and NASDAQ (Technology companies) indexes both had their worst weeks of 2019
  2. The Dow (Industrial companies) had its second-worst week of 2019
  3. The new tariffs are scheduled to start on September 1st but can be rolled back if China purchases more agricultural products

Companies have been planning for these tariffs by either purchasing more inputs/goods from China in advance or switching production to countries like Vietnam. On the other side, consumers cannot stock up which forces them to bear the cost of the tariff because companies pass on the price increase. What has gone unnoticed is that those involved in agriculture have taken the worst of this burden. Bankruptcy among farmers has doubled in some areas, forcing some to either lease their land or sell their equipment. This can partially be observed through the agricultural stocks that have struggled this year and make up a significant part of the Dow Jones Industrial index.

When Tariff Man appears a couple of things always happen;
  1. Markets around the world trend lower because everyone starts to speculate if their companies could be next to get hit with tariffs which impact revenues/demand
  2. It increases the stress on the Fed because the data that they depend becomes noisy
  3. Increases the pressures of protectionist policies which inflate prices based on false beliefs
Newton's third law states; For every action, there is an equal and opposite reaction. When governments feel pressured they will act in the best interest of their constituents and economic well being. Hence, don't be surprised if our big companies or industries continue to be hassled by other governments who want to constrain their influence in their country.

FYI....Per Bloomberg, The Chinese government just ordered the state-owned enterprises to suspend imports of agricultural products.




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