Trump’s Tariff Policy Is Working Spectacularly

What a volatile week we just had. High threatened tariffs were paused, mostly because about half of the world was eager to negotiate a new trade deal. The stock market couldn’t decide if it should go up or down, so we saw spectacular moves in both directions. And the US started a trade war with the second largest economy in the world.

Despite that, President Trump’s policies are working spectacularly.

He is in the process of solving the problem of the hundreds of billions of dollars of wealth flowing out of the country annually. He thought this was particularly problematic since it has been going on for decades. Brilliantly, and in a remarkably short time, more than 130 countries want to negotiate a new trade deal.

All countries understand that the goal of these negotiations is to have free and fair trade. The free part is not hard to negotiate. Simply eliminate all tariffs, or if governments feel the need, keep the tariff at 2 ½% for all products and among all countries.

The fair part is a little tougher. Virtually every country has at least one product they want to keep making domestically, even if the price would be lower if purchased elsewhere. The US, for instance, believes that for national security interests, we should produce steel, aluminum, copper and medical products domestically, even if the cost is higher.

Trump, the businessperson, knows two things are needed with negotiations like this. First, always deal from a position of strength. Have the other side come to you. And, secondly, create a sense of urgency. That brings them to the table quickly, even if they are reluctant.

By announcing large tariffs, most countries reacted quickly to negotiate new trade deals before those tariffs have a devastating impact on their economies. New deals will be reached in the next month or two with most countries.

The new deals will open world markets to US producers. Those new opportunities will grow our economy. Also, the domestic manufacturing industry will see a real growth spurt, creating millions of new, higher-tech manufacturing jobs.

The US will compete against cheap foreign labor by building plants that are highly automated. Applying the aspects of modern technology,the US will produce high quality products at competitive prices. Made in America will mean something.

The big problem is China.

Even though their economy is sagging, they reacted irrationally and wanted to fight Trump rather than negotiate with him. China cannot afford to lose the $450 billion of business they have in the US. As Trump continues to note, China will eventually have to speak with us, and he believes a good deal can be made.

The current road is bumpy. But the economy is growing, inflation is falling, unemployment is around 4%, interest rates are falling, and energy is getting cheaper.

The long-term outcome of Trump’s policy will be higher economic growth, more high paying jobs, overall price stability, and a continually rising standard of living.

In the meantime, the road ahead will be bumpy because the President’s very successful negotiating style often leads to much uncertainty. It is this uncertainty that causes wild fluctuations in the stock market.

For instance, when investors believed Trump’s policies would lead to recession or worse, they sold much of their portfolio. That drove stock values down more than 15%. Stocks became extremely undervalued.

Then Trump paused the tariffs. Investors believed that the worst would not happen, and they repurchased the undervalued stocks. That drove stock prices way up.

The stock market will continue to be volatile, mostly because of the Trump negotiating style and a gotcha media constantly looking for bad news about Trump’s policies.

The last difficult problem will be China. Trump is rightfully playing hardball. Many unfair trade practices by China must be eliminated. Because of the authoritative nature of their government, China believes they are dealing from a position of strength, even if that is not the case.

In the end, the US will be stronger. But there will be some short-term pain to get to the substantial long-term gain.

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