Tariffs, Quotas, and Modern-Day Protectionism | Fee-Only Fiduciary

By Steven Rogé, MBA, AIF®, CMFC®
Director of Research and Portfolio Manager

In keeping with one of President Donald Trump’s promises, we recently saw the enactment of tariffs aimed at reversing unfair trade practices of the Chinese state sponsor companies. This first step was aimed at the steel industry with tariffs on an estimated $60 billion dollars’ worth of business against Chinese steel entering our country. The announcement of this was widely anticipated and gave the Chinese ample time to craft their own retaliatory tariffs on various American products, such as agriculture and pork.

The news of tariffs erased nearly $1.8 trillion of U.S. equity valuations and we saw the worst one-week loss in the markets since January 2016. Technology stocks also contributed to the market decline last week as news of data impropriety with Facebook surfaced and drove down the darling of the new economy stocks. So, it was not just the news of tariffs that helped the market decline.

Tariffs have not been in the news much lately. The last time this was a big news story was the 1980’s, with the creation of the World Trade Organization (WTO).  Protectionist policies have been around since the founding of our nation. One of the first acts of Congress was the establishment of tariffs to protect our new nations manufacturing companies from their more established British counterparts. Other historic figures of our nation including Abraham Lincoln, Andrew Jackson, Alexander Hamilton, and Theodore Roosevelt all believed in efforts to protect American business from overseas threats. Some even believed they were crucial for our manufacturing base, and even more important to national security.

How do we make sense of a return to protectionist policies? While the threat of protectionist policies is not without risk, keep in mind that our government may be using this as a way to get our trading partners to the table to negotiate a better deal. Let’s hope this is the case.  If not, our best speculation is that the effects of a trade war will most likely be hyper-local. Those towns immediately surrounding steel mills and other major service providers around the steel industry will experience a swoon in economic activity as demand for U.S. based steel increases. Most of these towns have been hollowed out from years of languish as cheap global imports entered the market.

Surprisingly we believe the larger, but much less covered story in the media the last week or two has been rising short-term interest rates. The London Interbank Offered Rate (LIBOR) increased along with the Federal Reserve Banks decision to increase short-term interest rates. We also saw the Federal Reserve chair Jerome Powell’s first news conference. Although interest rates are low, the tightening of monetary policy has come to the forefront of investors’ concerns.

As most of our clients know, our portfolios are built to withstand a variety of market conditions. Although this doesn’t mean that they are immune to market volatility, it does mean that we incorporate various market environments into our client’s financial plans. Both the ups and downs of the investment markets are a natural process that allows us to rebalance accounts to take advantage of these opportunities.

While we don’t know what the future holds from the market over the next year, we do know that we have a plan in place, and a strategy that works over time to aid our clients in buying low and selling high. Although this re-balancing process may seem counter-intuitive at present, we believe it works over longer periods of time. Having a financial plan transcends any short-term market gyrations that occur and helps our clients achieve their goals.

If you would like to discuss your portfolio, financial plan, or life situation, please contact us at 631.218.0077 or at info@rwroge.com to schedule a complimentary consultation.

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