How to play a trade war

Monday, 5 March 2018
Melbourne, Australia
By Bernd Struben

  • An ounce of prevention
  • Only three days left to act

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.’

US President Donald Trump

You’ve got to hand it to Donald Trump.

He’s got nations around the world reeling from the prospect of a trade war ignited by the latest round of US tariffs.

Trump’s plan would introduce a levy of a 25% on imported steel and 10% on aluminium. That’s atop the recent tariffs on washing machines and solar panels.

Pundits speak of a blow to global economic growth, and a lose-lose scenario for all parties.

Investor uncertainty has seen stock markets tumble.

And Trump just shrugs it all off.

He goes well beyond defending the need for protecting US manufacturers from low cost foreign competition. He actually seems to welcome the prospects of a trade war. Over the weekend he tweeted that they’re good…and easy to win.

He added:

Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!’

Australia doesn’t fall into this category, importing more from the US than it exports.

According to the Department of Foreign Affairs and Trade, in 2016 Australia’s goods exports to the US were worth $12.4 billion. That compares to Australia’s total imports from the US of $29.7 billion.

Add to that Malcolm Turnbull’s contortions to be ‘besties’ with Trump, and you might think Aussie companies would be exempt.

Not so.

From The Australian Financial Review:

President Donald Trump’s embrace of an international “trade war” has been compounded for Australia by the US government on Saturday imposing a 51 per cent tariff on Perth silicon metal exporter.

Australian-listed companies Rio Tinto and BlueScope Steel are also in the firing line of Mr Trump’s intended separate import tariffs…

Rio Tinto’s Canadian aluminium smelters provide more than $US2 billion of annual product to the US, while BlueScope Steel ships about $200 million of steel from Australia to its US operations.

Capital Economics noted that steel and aluminium accounted for about 2 per cent of world trade.

Simcoa is a privately held company. So it’s too early to see what affect the 51% tariff will have on the business. But it’s not likely to be good.

As at writing, listed company BlueScope Steel Limited’s [ASX:BSL] share price is down 3.78% since Friday morning’s opening.

The Brits, perhaps naively, have also been hoping to escape Trump’s tariffs.

The UK also counts among America’s staunchest allies…if you ignore that sticky period from 1775–1783. And like Australia, the UK government is pushing hard to sway Trump’s mind.

From Bloomberg:

The U.K. has “deep concern” about the U.S. plan to slap tariffs on steel and aluminum imports, and negotiated accords are better, Prime Minister Theresa May told President Donald Trump…

“I just think that the U.S. is not taking an advisable course in threatening a trade war,” U.K. Cabinet Office Minister David Lidington said Sunday on the BBC. “Trade wars don’t do anybody any good.” …

He expressed doubt that Trump’s proposal would go ahead.’

Take note of the last line. Analysts and investors have been doubting Trump’s resolve to follow through on his bluster since day one.

That’s a mistake.

More after the markets…

Markets

Over the weekend, the Dow Jones Industrial Average closed down 70.92 points, or 0.29%.

The S&P 500 gained 13.58 points, or 0.51%.

In Europe, investors were clearly flustered over the looming possibility of tit for tat tariffs. And potential levies on European cars. The Euro Stoxx 50 index finished down 74.41 points, or 2.19%. Meanwhile, the FTSE 100 fell 1.47%, and Germany’s DAX fell 277.23 points, or 2.27%.

In Asian markets, Japan’s Nikkei 225 is down 109.52 points, or 0.52%. China’s CSI 300 is down 0.12%.

In Australia, the S&P/ASX 200 is down 33.79 points, or 0.57%.

On the commodities markets, West Texas Intermediate crude oil is US$61.63 per barrel. Brent crude is US$64.76 per barrel.

Gold is trading for US$1,323.36 (AU$1,706.90) per troy ounce. Silver is US$16.53 (AU$21.32) per troy ounce.

One bitcoin is worth US$11,433.42.

The Aussie dollar is worth 77.53 US cents.

An ounce of prevention

It didn’t take a genius to see a trade war brewing the moment Trump got the keys to the White House. Nor did it require a crystal ball.

If it did I wouldn’t have been able to give you fair warning in Port Phillip Insider last year.

Here’s what I wrote on 17 August, 2017:

He [Trump] continues, however, to trumpet his “America first” policy. In line with that, trade ructions with China — the world’s second largest economy, and Australia’s largest trading partner — could easily boil over into an all-out trade war…

It goes without saying that if the US and China engage in tit for tat tariffs and import restrictions, Australia isn’t going to walk away unscathed. The ASX would likely follow US markets down. And Aussie investor interest in gold should also peak.

It may take some time to play out. But as I’ve written to you before, investors ignore Trump’s rhetoric at their own risk. He’s followed through — or at least attempted to — on almost everything he’s said since taking office.

Though his domestic policies have gotten hung up in Congress, he has greater freedom to pursue his agendas on an international level. And China clearly remains in his crosshairs.

When the trade dispute starts to truly heat up, gold miners should offer some of the biggest potential gains. Remember, gold miners are leveraged to the price of gold. And if gold soars to US$1,400 and beyond, the best gold miners could see their share prices double…or more.’

That wasn’t the first, or last, time I banged on about the likelihood of a Trump inspired trade war.

In Port Phillip Insider on 21 September, 2017 I noted:

The second — and I believe far more likely — crisis unfolding before our eyes is a global trade war. One that will begin between the US and China but will see other nations forced to take sides.

Tensions over North Korea may well be the trigger to set that trade war into motion. But even without Kim’s provocations, the Trump administration has been itching to ramp up tariffs on China. As you may recall, while campaigning for the presidency, Trump called China a “currency manipulator”.

Now, all of this is getting plenty of media coverage. Both from the mainstream, and from those of us who try to provide you with independent and alternate ideas. Yet it seems investors have firmly decided not to see the threats.

Again, take note of the last line here.

The writing’s been on the wall for more than a year. Yet investors and politicians alike act like this is coming out of nowhere. And most still don’t believe a real trade war will eventuate.

Or at least they don’t want to believe it so much that they’ve managed to convince themselves it won’t happen.

Like the UK’s Cabinet Office Minister, David Lidington who still doubts Trump’s proposal will go ahead.

Some scepticism is always warranted. And it’s certainly possible the latest trade spat will fizzle out rather than blow up.

But as Benjamin Franklin famously said, ‘An ounce of prevention is worth a pound of cure.’ (It doesn’t sound nearly as snappy if you convert this to the metric system.)

Franklin was referring to fire safety when he said this. But he might as well have been giving investment advice. Assuming he got the nod from our compliance department.

There are a few ounces of prevention you can take with your portfolio.

First, be wary of companies that are highly dependent on exports for their earnings. As well as companies that depend heavily on imported materials or parts for their end product.

Instead, look for companies with strong domestic supply and demand chains within their own countries.

Second, if the global trade spat turns into a real trade war, investor confidence will take a big hit. And that will see the herd heading for safe haven assets.

Like gold.

And if the gold price rises, the best gold stocks should see their share prices rocket.

That’s true for the major producers, like Newcrest Mining Limited [ASX:NCM]. And it should play out even better for the top gold juniors.

Our in-house gold expert, Jason Stevenson already expects his top three junior gold plays to return triple digit gains inside the next six months. (A claim he’s backing with a unique guarantee.)

And that’s without the spectre of a trade war sending investors flocking to relatively safer assets like gold.

To find out how Jason used his proprietary ‘EP–6 signal’ to narrow the field down to these top three gold plays, just click here.

Only three days left to act

There’s at least one man who hasn’t lost any sleep over Trump’s escalating threats on global trade.

Well, one man and most of his readers over at Time Trader.

I’m talking, of course, about controversial economist Phil Anderson.

Phil isn’t concerned about the noise coming from Washington DC. Or from Beijing or Brussels for that matter.

Instead, Phil keeps his eyes on the charts. And on how they relate to where we are within the Grand Cycle.

This method forms part of the foundation for his proven ‘T.I.M.E.D. Stocks’ method. A strategy that’s all about getting into and out of the right stocks at the right time.

Obviously, that’s every investor’s goal. And obviously no one, not even Phil, times every entry and exit point perfectly. But Phil’s track record is impressive.

You can see for yourself — and get the inside story on his ‘T.I.M.E.D. Stocks’ method — in this exclusive interview here.

Publisher Kris Sayce opened the door to new membership for Time Trader last week. But remember, those doors close in three days…at midnight this Thursday.

Be sure to check out this offer on our most popular trading service before then.

And before you log off, here’s this, from The Australian Tribune:

Political Correctness Runs Amok in France

You would think the French police have enough to keep them occupied without enforcing politically correct behaviour.

Have French politicians forgotten about Charlie Hebdo? In 2015, terrorists targeted the magazine simply for printing cartoons of Muhammad. In separate incidents, 17 people were killed.

In November that same year, Islamic terrorists…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd