How Long Could This Go On?
A tariff timeline. No deer this time, but there are wolves at the door.
I have no idea how long the Tariff Turmoil could last. But we can always look to history to see how long prior Tariff Turmoils went on. Thanks again to the analyst crew at Bernstein SG for help here. In a recent note (Japan Autos & Auto Parts: US tariffs - past the braking point, how much longer will this go on? by M. Akita et al.) they pointed out that the last time around the to-and-fro went on for over a year. Looking at this from the perspective of Japanese OEM share prices only (this year’s version of Tariff Turmoil (TT) is more global), they wrote (lightly edited):
“During the Trump 1.0 presidency, it took 1 year and 4 months from the initial consideration of auto tariffs to the final decision not to impose them. While discussions on a 25% tariff on US imports of automobiles began in May 2018, it wasn't until September 2019, when then-President Trump and Prime Minister Abe agreed not to raise tariffs on Japanese cars and auto parts, that the Japanese stock market and autos sector were finally relieved. In terms of stock performance, the Japanese OEM autos sector declined 28% (vs. a TOPIX [ the Japanese equivalent of the S&P 500, more or less ] decline of 10%) and… the auto parts sector declined 31% during this period.”
The chart telling the tale:
Will today’s TT last longer than that - because the President seems more forcefully committed to an (admittedly fluctuating) tariff crusade than in 2017 - or shorter - because the turmoil is so broad and deep that the Administration will feel greater pressure to back down?
You tell me.
But if the past is any prologue, we are in for a long slog. And as we all know in the business world: we can work with almost any set of rules, but we can’t work with an ever-changing set of rules. Put the goalposts where you want, but don’t move them afterwards. Uncertainty is almost a greater problem than policy. Prolonged uncertainty is going to cost us all.
My thanks again to Bernstein SG for the great work, despite how painful it is to read their reminder.
And just to turn up the Cognitive Dissonance knob to 11, I’ll excerpt here the exact, unedited, official text of a Donald Trump speech on the USMCA (the trade regime that in 2020 replaced NAFTA), given in Warren, Michigan, on January 30 of that year:
“The USMCA is the fairest, most balanced, and beneficial trade agreement we have ever signed into law. It’s the best agreement we’ve ever made, and we have others coming. And, by the way, the China deal, two weeks ago, was just signed. And that’s going to bring $250 billion into our country.”
That was then, this is now. Buckle up!
PS: Towards the end of the speech another topic was raised. I am not going to second-guess or apply hindsight to anyone on this, because essentially no one (certainly myself included) saw this coming. And this will be even more painful to read. But here goes:
“We’ve taken in billions and billions of dollars from China. Billions and billions of dollars from China. And then they agreed to sign the agreement. Now we’re working very strongly with China on the coronavirus — that’s a new thing that a lot of people are talking about. Hopefully it won’t be as bad as some people think it could be. But we’re working very closely with them and with a lot of other people and a lot of other countries. And we think we have it very well under control. We have very little problem in this country at this moment — five [cases]. And those people are all recuperating successfully. But we’re working very closely with China and other countries, and we think it’s going to have a very good ending for it. So that I can assure you.”