Uncertainty: something that is doubtful or unknown.
Uncertainty: what president-elect, Donald J. Trump, brings to the table before taking office in January 2017.
President-elect Donald J. Trump’s undeviating rhetoric about Protectionism during the election period is something that has made many physical commodity traders, including myself, very nervous. The thought of getting into a “pitching” contest (pardon my French, but POTUS-elect would certainly approve) with overseas partners such as China, India, and Mexico is frightening.
Placing tariffs or import quotas on imported goods from other countries would create a scenario where the American consumer would immediately have to pay a higher price for the goods. But what if we make the goods here in the US? Well, in many instances the US does not produce the imported goods or it simply consumes more of the good than it produces. A great example of a good that we do not produce enough and need to import is Bauxite. This mineral is used for aluminum production and cement making. Some of the largest Bauxite producers in the world include Australia, Brazil, China, Russia, and Venezuela.
A heavy dose of protectionism from the US would certainly come with an even heavier dose of retaliations by other countries especially those that have low-wage work forces such as China. These countries could easily pressure the US with a taste of its own medicine or with very strong-armed diplomacy causing even more uncertainty. Whether it is manufactured goods or raw commodities, the US will not be able to compete with the labor costs of countries like China as our minimum wage sits at $7.25/hour and China’s sits at approximately 11 Chinese Yuan or $1.62/hour.
I am convinced that even the president-elect knows this! Last time I checked, the famous Trump clothing brand was produced right next to the Great Wall.
The time to think outside the box is now! If both sides of the aisle are ready to protect the American workforce, it may be appropriate to create alternatives to protectionism. Both Secretary Clinton and president-elect Trump presented plans to increase infrastructure spending throughout their campaigns. An infrastructure plan is a viable option to rapidly generate new jobs and increase capital investments across the US. The other obvious option is to directly put more money into all hardworking American pockets. The quickest way to accomplish this is to decrease taxes and fix the issues causing skyrocketing healthcare premiums. These options will not be easy to implement especially if part of it entails repealing Obama Care, but we have seen some mind-blowing things happen recently – the night of November 8th, 2016 is an excellent example.
All we can hope is that someone in Capitol Hill is prepared to convince president-elect Trump that the US already has several advantages over many of these countries. The US economy constantly innovates, creates new technologies, facilitates access to investment capital for trade, and has a higher per capita income than most nations.
Simply said, please POTUS-elect do not stop making your ties in China.