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

0 | By Shah Gilani

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 this 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, 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 U.S., since President Trump signed an executive order to withdraw from the pact on January 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.

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

When China joined the WTO in 2001, the U.S. 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.

To bring jobs back to the U.S., Donald 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 Donald 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 elevating the stock market to greater more sustainable heights.

And, because of tax cuts championed by this administration, American corporations are now able to “repatriate” an estimated $3.1 trillion in earnings that they’ve been holding outside the United States to avoid high taxes.

Now is the time for investors to make sure they are holding the stocks that will give them the most return for these “tax-cut cash piles.”

Luckily, my close friend and colleague Keith Fitz-Gerald is cluing all of us in to exactly what he expects an optimum portfolio will look like. Not to mention, Keith’s model portfolio is on fire with over 125 winning closeouts and over 60 triple-digit winners (including partial closeouts).

Read more about this opportunity now, if you take your financial security seriously.

Sincerely,

Shah

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