Trade War 2.0 - stage 2 : Talks have begun
Introduction
Read the stage 1 reference here. In this short post lets discuss what's been unveiled in the current stage 2 of the Trade War. On these geopolitical events unfolding before our eyes, we need to be able to "read between the lines".
Reviewing back stage 1
As mentioned in slide 4 (current conditions): the main goal of the reciprocal tariff is to coerce countries to renegotiate their trade agreements. So as foolish as the madeup formula used to calculate the reciprocal tariff numbers, that was the stick component ~ either we renegotiate a more fair trade deals, or you'll get whacked by US tariffs!
Stage 2: talks have started!
As expected, most countries have started the negotiation with the US, while China and EU have been looking for retaliatory actions.
- Israel and Vietnam: were the first ones to drop tariff on US imports to zero.
- Japan: increasing US imports of food products (rice, soybean, fish) and automobiles are among the items negotiated. Read here.
- Indonesia: increase imports of US food and commodities amounting $19 billion worth of products, while reducing orders from other countries. $10 billion worth of energy imports (LPG and LNG), $9 billion food products (soybean, wheat). Read here.
Majority of countries have initiated talk with US and we could expect similar outcome as the above: these countries need to increase imports of US products in order to be exempt from the reciprocal tariff. More demand for US products means more workforces are going to be needed.
Effect on the automobile industry
One of the hottest topic is the effect on automakers:
- Honda (Japan's #2 largest automaker): moving its manufacturing plant for Civic hybrid from Mexico to USA - read here.
- Volvo : increasing number of cars build in the US - read here.
- GM : boost production of trucks at its US plants - read here.
- Hyundai Motor : pledged to invest $21 billion to boost US production capability - read here.
As you can see from several mentioned above, most of them are looking to either: a) Build new plants or b) Expand existing plant capacity. These effects are one of the main targets of Trump's administration as it brings investment capital into the US and open workplaces to reduce unemployment.
Conclusion
The goal is clear: tariffs are tools of negotiation ~ "The art of the Deal". However as things are now, it's not smooth-sailing so far..countries are having difficult times finding a middle ground, especially with reports on US trying to coerce trade partners to isolate China as part of the ongoing deals talks.
The idea of MAGA - Make America Great Again - by prioritizing the needs of one's house has great intention. However if in reality this is done by demolishing the neighbours, does the end always justify the means? Whatever our perspectives are and how we decide to see this ongoing trade war saga, there are lots of profits to be gained from this turbulent economic and geopolitic situation.
If you notice it's been a while since my last blog on programming, that's because for now I'm fully wearing my invesment analyst hat. Seize this "generational opportunity"!