Chinese Tariffs: Not Worth A Damn Worrying About
I’m in Spain for the month.
There’s been some tough news since I arrived on Sunday.
The national football team lost to the Russians after the game went to penalties. And the crabs aren’t biting this year. That’s according to one of the locals down by the river this morning.
He had a bucket of swimming fish next to his rod. I was there with my daughter. The fisherman told her she could touch the fish — if she wanted.
‘You first, Papa’ she said.
I put my hand in the water. One of the damn things jumped right out onto the grass!
Trying to catch a thing as slippery as that is like writing about financial markets. One minute you think you have it then, maybe not!
1,000 years of history puts things in perspective
This is not Barcelona or Madrid, by the way. Peñafiel is a small village in the northwest of the country. The local economy is vineyards and agriculture.
The wine is delicious. For sure you’ve heard of the Rioja region in Spain. But the wider area here is known as the Ribera del Duero. This area is renowned in Spain for the red it produces, and for good reason.
You don’t have to come here to give it a whirl, either. Dan Murphy stocks some of it for about $15 a bottle at the low end. I drink gallons of the stuff.
You need something to wash down the cuisine here — lots of lamb, garlic, onion and potatoes. The bread is fresh every day, and superb.
They must be shipping a lot of wine for export. I can’t prove that, but I’m seeing a lot more nice houses since I was last here in 2016.
The area is stony terrain, with the trees by the river running through the village, giving a streak of green.
Here’s a snapshot I took where the fisherman was catching his lunch.
It’s also where the bulls run in August as part of the summer festival San Roque. They spill out into a 15th century bull ring.
You need a sturdy character to live here. The summers are hot and the winters frigid. A castle shaped like a ship oversees the whole place. Penafiel’s history stretches back 1,000 years. You can still see the influence Islam had on some of the local churches from the Caliphate centuries ago.
A trade war between China and America will change precisely nothing about this place.
But what about the rest of the world?
I’m not so sure any trade war would derail America, even if it escalates. And it’s the US taking the world economy along with it at the moment.
I think most of it is bluster.
I picked up a copy of The Economist for the flight over. The Schumpeter column says that American firms get a puny 4% of their global sales in China.
A lot of them have been walled out of the place. Schumpeter goes as far as to say US executives don’t even care about the tariffs at all.
OK, US exports of soybeans and oil could take a hit. But are the tariffs as they are now going to kill the US stock market?
I doubt it. After all, US firms still have billions of dollars overseas that they could repatriate to the US and use for stock buybacks if there was a heady selloff.
Domestic demand is just fine in the US.
Plus, there’s already a suggestion that Trump could use an archaic law from the 1930s to help US farmers getting hurt now.
And according to the Financial Times, the collapsing Chinese stock markets are because of faltering domestic demand in China. It’s not even to do with America.
And the news on that is notable
Already the central planners in Beijing are tweaking the rules. In late June, the People’s Bank of China said it would cut the reserve requirement for some of the Chinese banks to help them lend to small firms.
And now the government is drafting a tax cut for most income earners to boost consumption.
That’s not to say we’re off the hook completely. We do have one worry. Chinese firms have a lot of US dollar debt and the yuan is weakening. So we may still be in for a bumpy ride regardless of what Trump does on tariffs.
But even a few bankruptcies in China doesn’t mean the whole place is going to fall over.
History could be instructive here. The Asian financial crisis, which swept the world in 1998, spooked everyone. But US stocks didn’t top out until March 2000.
There are lots of reasons to suggest the US economy is going to keep booming over this year and next. Trump’s deregulation of the banking sector is far more important than what the mainstream is drawing your attention too.
That’s why I keep saying the same thing: Keep accumulating the best stocks you can find. The going won’t stay good forever — as any crab fisherman can tell you.