Tariffs and Trade Wars: Making America (and Markets) Great Again

Good riddance, Gary Cohn.

The former Goldman Sachs Group Inc. (NYSE: GS) president and chief operating officer, who became Donald Trump's director of the National Economic Council, exited his position last week over a row about the tariffs he doesn't want the president to impose.

He's gone because he's wrong.

Steel and aluminum tariffs proposed by the president are long overdue; they're good for America and good for the stock market.

The reality of free trade agreements is that they aren't always what they promise to be, and big businesses frequently use them against American workers.

Donald Trump's tariff saber-rattling won't ignite trade wars. Here's how we'll really see America become great again (and drive the stock market a lot higher)...

It's a Matter of Principle

There's nothing wrong with trade agreements, in principle. The diplomatic ideals behind them are fine; it's the execution that causes trouble.

For this week's news, there are three trade agreements you need to know about.

The North America Free Trade Agreement (NAFTA), signed in 1994 by the United States, Canada, and Mexico, eliminated tariffs between the countries and tripled annual trade to $1.4 trillion in 2017. This agreement was signed just a year before the World Trade Organization (WTO) came to be.

The WTO has regulated international trade since it was signed into effect in 1995 by 123 countries as a replacement for the 1948 General Agreement on Tariffs and Trade (GATT). Its principles of trade include transparency and safety values, binding and enforceable commitments, non-discrimination, and reciprocity from all parties. It has its own courts that hear and settle international trade disputes.

Even the recently proposed Trans-Pacific Partnership (TPP) - which enhances trade between member nations and serves as a bulwark against China - makes sense in principle. And it's going ahead without the United States, since President Trump signed an executive order to withdraw from the pact on Jan. 23, 2017.

But principles change.

The United States is no longer the only mega-economic power in the world, as it was when GATT was signed.

Since the WTO and NAFTA were signed, the European Union, China, India, and South Korea (as well as other countries and trade blocs) have been competing aggressively with the U.S. and each other in international trade.

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The fallout from NAFTA, or the "giant sucking sound" presidential candidate Ross Perot once warned we'd hear as U.S. jobs were hoovered up by Mexican manufacturing, came to pass.

When China joined the WTO in 2001, the United States experienced a tremendous amount of job losses. This cheap labor attracted capital, and it exponentially boosted Chinese manufacturing of everything that could be exported into the U.S. and other WTO partners.

The problem with so-called free trade agreements is many of our trading partners' raw and manufactured goods are state-subsidized, making them cheaper on the open market.

China, for example, subsidizes steel manufacturing because it creates jobs and is in the country's national security interest to supply its own steel needs. The resulting overcapacity from massive subsidies is dumped around the world, including in the United States.

The European Union does the same. So does South Korea. Even the U.S. subsidizes favored industries. In our case, it's agriculture.

The common denominator is that subsidized industries are all big businesses. They're all international exporters.

Here's What Can Really Make America Great Again

The big U.S.-domiciled multinational businesses, the bread-and-butter clients of giant banks (like Goldman Sachs), are guilty of offshoring jobs and hollowing out U.S. manufacturing because the free trade agreements they lobby for allow them to.

Gary Cohn is a big business, big bank, big free trade advocate because that's been his bread and butter.

Even as a presidential candidate, Trump was always against TPP, openly threatened NAFTA, and even proposed exiting the WTO. Gary Cohn knew that when he agreed to be the president's top economic advisor.

Tariff pacifists like Cohn have their own agenda - and it isn't bringing jobs back to America, because that would undermine their real constituents' profitability.
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To bring jobs back to the U.S., Trump's simply applying little-used American laws that allow the unilateral imposition of tariffs and quotas without seeking WTO permission.

There's no intention on the president's part to start a trade war, anywhere, with anyone.

Proposing tariffs is a shot across the bow of big businesses who export American jobs and across the bows of trading partners who have gotten away with subsidizing industries under cover of the WTO.

Everyone's now talking about tariffs, trade agreements, and where real imbalances exist and how they've impacted American manufacturing and jobs.

Reordering American priorities, bringing back jobs, reinvigorating manufacturing, and making "Made in the USA" a great thing again is what Trump has always campaigned.

If he's not undermined by self-interested, deep state crony capitalists in his own administration and Congress, and by big businesses who've profited by exporting jobs, the president's targeted tariffs and better America-centric bilateral trade agreements will "Make America Great Again."

You'll see it when they power the economy forward and elevate the stock market to greater more sustainable heights.

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The post Tariffs & Trade Wars: Making America (and Markets) Great Again appeared first on Wall Street Insights & Indictments.

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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