Trump, Tariffs and other Musings
“There are decades when nothing happens and then there are days when decades happen “. This quip is attributed to Vladimir Lenin. The last few days were such that it felt decades are happening.
There is a pattern for those who follow Donald Trumps actions. At beginning of every event involving the DON, everyone brushes it of as highly improbable even bordering to insanity, then slowly as the probability of the event increases everyone hopes that it doesn’t happen (surely better sense will prevail). Later when the dreaded event happens people are in shock and disbelief and later resort to wide spread panic and capitulation to reality. If we take most of the events like Trumps first time republican nomination, first term presidency, second nomination, second presidency, the proposed Ukraine and Gaza deal and present tariff wars we see this pattern play out again and again.
It was George Bernard Shaw who said “The reasonable man adapts himself to the world, the unreasonable man tries to adapt the world to himself. Therefore, all progress depends upon the unreasonable man “.
While this is right more often than not, I am not sure whether its always progress that is the outcome of the unreasonable man. Adolf Hitler is a case in point.
Donald Trump’s demands and actions have always been preposterous and obnoxious. It is believed to have got cemented as a strategy from his days as builder and realtor in the 80’s. It’s a strategy along with hyperbole which is used by street smart and successful traders and builders. Demand the moon and back down an inch to always get what you wanted. Along with this most of his beliefs and economic principles (Most analysts believe he doesn’t have any though 
) were rooted on the ideas of that era. There was an over whelming romanticizing of the pre depression era of huge tariffs, an era where taxes were not applied and govts were hands off from businesses. His favorite President is supposed to be William McKinley whose presidency was marked by high tariffs and an expansionist agenda where he annexed Puerto Rico, Guam, Philippines and Hawaii as the spoils of the Spanish American war.
Now back to the present, the countries across the world are slapped with base tariffs of 10% and most of the bigger economies, friends and foes alike are slapped with additional tariffs ranging from as high as 54% (34%+20%) and 46% to China and Vietnam, 26% to India, 24% to Japan , 20% to EU and so on.
The absurdity of it all is that a measure which is touted as reciprocal tariff was calculated based on the below formula:
(Import deficit of US v/s the Exporting nation / Total exports to US from the nation) x .5
For eg. India has total exports to the US worth $ 86 bn and US has a trade deficit against India to the tune of $ 45 bn. So total tariff imposed on India is 45/86 = 52 x .5 = 26%.
Read somewhere that this is as absurd as taxing you based on the number of vowels in your name 
.
The tariffs are bound to be a failure in obtaining its slated objectives like onshoring US manufacturing, bringing more jobs to the US and making Americans wealthy etc. The early indications from the market indicate that the tariffs are bound to stoke inflation, break critical supply chains and if large trading partners chose to retaliate (China has already done with 34%) will spell doom across the world and the US
There are many theories being touted by the MAGA ideologues that this is just an opening salvo of a much bigger agenda. Some of the theories include that this is a ploy to de value the US dollar by bringing every major country on the negotiating table and sign off a Mar-a-lago accord (a la Plaza accord) aimed at devaluing the US dollar, reduce trade deficits and boost US exports. Another reason touted is that this is to provide for US debt reduction and repayment which is to the tune of $ 1 trillion+ in current fiscal. Its true that US has been running a huge deficit for several years which led the world to export to the US and save and transact in the US Securities and US dollar. But this system had worked well in the past and despite all its inefficiencies have uplifted several millions from poverty and to relative prosperity.
Remember our own demonetization debacle, even when it was amply evident that it had back fired, the bhakts took great pains and to provide with wild theories and explanations of why it was a brilliant move. I remember one theory stating that the new 2000 Rs note has a tracking chip embedded so as to track it .
I believe more than anything else the current US scenario is a case of “Persian Messenger Syndrome”.
It is believed that the Persian monarch had a system of killing the messenger of the bad news. The messenger hence would take great pains not to deliver the bad news for fear of retribution and the king and court only used to hear the good news. In fact, the court was also chosen in such a way as to only applaud the good news. The checks and balances and the sane voices of the first term of Trump presidency is largely absent this time and even though some of the policy influencers in the top echelons are accomplished in their respective fields, I am not entirely sure if they have the moral compass and rectitude to call a spade a spade and deliver the bad news.
What ever is the reason for this tariff war there are going to be dire repercussions and unless it is withdrawn this would be a lose-lose war for all the parties involved. But the problem with right wing strong men like Mr. Trump is that they find it hard to reverse course and would need a strong alibi for the fear of being touted as a failure. They would let the world crumble rather than accept failure.
What does this mean for the investors at large. As John Kenneth Galbraith said “ We have two class of forecasters . Those who don’t know and those who don’t know they don’t know “.
I wont venture to predict the direction of the market. The market and we the “reasonable people” per Mr. Shaw might adjust . Hence I propose to follow this philosophy for the time being.
. Portfolio currently at ATH levels.
Musings On the year gone by
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China , Mexico 
and Canada 
which should also impact US manufacturing detrimentally .
builders. The US 
demand for new ships would be a boon for South Koreans and Japanese builders. Can Indian shipyards get some of the pie ?
)
