Trump’s failing trade strategy

Trump sped up the industrial job decline

According to Bloomberg and the Wall Street Journal, domestic jobs in the US industrial sector have dried up at a higher pace during the Trump administration, pre-covid, than during Obama’s. The US trade deficit is expanding, as well, not contracting, as Trump claimed it would. In other words, Trump’s central economic effort, to compel pre-computer age manual labor jobs that started leaving the OECD for lower labor-cost destinations forty years ago to return to the US–and to shrink the trade deficit by doing so–isn’t working. In fact, according to portandterminal.com and Bloomberg, even an industrial controlled by Wilbur Ross, Trump’s Commerce Secretary, is in the process of pulling up stakes and relocating to Mexico.

a win for China

The composition of the trade deficit has changed, however, as Trump tariffs have pushed firms to exit China for Vietnam and other similar destinations. This is an unexpected gift for China. US levies are forcing Chinese businesses to make higher value-added products, a result Beijing had keenly desired for years but had been unable to achieve without Trump’s tariff assistance.

not a surprise, except maybe to Trump

None of this should be a surprise to anyone involved in international economics. It’s the textbook outcome. It’s also a big reason why the NASDAQ (dominated by large multinationals) is +105% since last inauguration day and the Russell 2000 (mid-cap domestic firms) is up only a fifth of that, at +21%. For 2020 to date, the figures are: Nasdaq +21%, R2000 -3.5%.

the stock market knew

Actually, the stock market has been expressing this skeptical view of Trumponomics from the beginning.

2017 2018 2019 2020, to date

NASDAQ +28% -4% +35% +21%

R2000 +14% -11% +23% -3.5%

Looking at a chart back to 2000, NASDAQ, S&P 500 and R2000 were more or less neck-and-neck until deep into the recovery from the 2008-09 financial crisis. During the final two years of Obama, the R2000 begins to lag–but nothing comparable with the persistent, and large degree of underperformance so far under Trump.

Three points:

–the most important for us as investors is whether/how trade policy will change if Biden becomes president–and the implications that would have for NASDAQ vs. R2000. Although just ending the current idiocy must be good for the R2000, the negative effect on the economy of Trump’s continuing coronavirus containment failure will likely be hard to counter and the effort may last a long time. This is a question of when the R2000 will perk up, not if, though.

–no news source seems that interested in this story

–it has been reported in the Wall Street Journal, however, even though that newspaper is a member of the Rupert Murdoch media stable that stars Fox News and the New York Post, both highly partisan Trump boosters. Just as strange as Mark Zuckerberg’s sudden realization that legitimizing QAnon and anti-vaxxers might not be such a great idea.

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