Author Topic: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum  (Read 28587 times)


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Re: Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum
« Reply #350 on: April 15, 2018, 12:02:04 PM »
The toys trade deficit is only an example of the typical scenario that also occurs across the other major import/export categories: machinery, furniture and bedding, sports equipment and footwear.

A few years ago, built a significant position in Mega Brands, a Canada-based manufacturer of building blocks for kids (bought by Mattel). One of the basic challenges for them, in terms of the competitive landscape, was the wage cost differential . How did they deal with that?

1-They invested ++ in China (manufacturing capacity and low wages).
2-They invested in advanced automation machinery in their Canadian plant (which I visited).

For this specific company, they used internally generated funds to invest in 1- and 2- and I’m glad they did. And free trade is good. But.

Let’s bridge to “trade economics”. In the aggregate, on a net basis, the trade deficit between high wages countries and low wages countries has been rising and this trend is unlikely to stop until the wage gap and the difference in standards of living disappear and consumers from high wage countries have tended to borrow to maintain that trend. Also, in the aggregate, on a net basis, the private players that reinvest in high wage countries in order to increase profitable production do so by buying machinery (which may come from low wage countries) and, to some extent, by borrowing from low wage countries.

In the early 1980’s, trade with China was immaterial. Since then, the plan has been to let China grow and hope for more political, social and economic freedom. And now, China is becoming a formidable competitor with a potential to reach US hegemony. Trade with China is now material and it’s not only about toys. Thucydides’s trap style.

In the past, it was thought/feared that the Soviet Union or Japan models would take over. The models auto-deflated and maybe it’s just a matter of toughing it out. Personally, I would not bet on China but some very savvy people (ie Bruce Flatt from BAM) do:

Hat tip to LongTermView.

It’s a tough issue and a coherent domestic and international strategy does not guarantee a positive outcome but IMO it’s worth the try.   
So, “The real question is why the US population saves so little?”

It’s not a new problem as people already worried about this in the 1980’s and Mr. Buffett, himself, shared concerns in the early 2000’s.
If “stress” is the issue, I would respectfully submit that a QE-style aggregate Prozac will not be a long term cure.

But the “problem” is getting bigger and an imbalance may be seen as an elastic band that is progressively stretched. There are ways to decrease the pressure but it may snap.

Barbell strategy, anyone?