Trade Wars
Pfäffikon SZ, Switzerland – Since Donald Trump moved in the White House, significant long-term trade relationships are under pressure. Each week there is a country attacked verbally by Trump. A trade war with China was a hot topic during the election campaign. It seems only a matter of time that countries such as Switzerland and the Netherlands also get their turn.
Shortage
One way to understand Trump’s economic threats is to take a look at the U.S. trade balance. Unquestionably, Washington will have studied this and makes decisions on that basis. Countries with which the U.S. has a trade deficit, thus come accelerated in the crosshairs of the fickle Trump. A trade deficit occurs when, for example, country X imports less than it exports to the U.S. For Trump, a trade deficit works like a red rag to a bull. Indeed, Trump wants to create jobs in The States, and consequently, he looks first at the countries that have a trade surplus with the U.S.
Currencies
It goes without saying that China has a trade surplus with the U.S. But also Japan, South Korea and Mexico of course, are more or less in the same boat as China. Another thorn in the side of Trump is the relatively high dollar. Trump calls it “unfair” if countries dastardly use an inexpensive currency. The countries whose names are called out loud by Trump are China and Germany. Needless to mention that for decades the Netherlands more or less operates and benefits in the wake of Germany.
Levies
The Netherlands could be hit relatively hard by the dynamism of Trump. And we have not even mentioned the effects of Brexit; after all, this comes to light when the Brexit is a fact. Several economists expect a decline in the Dutch gross domestic product of 0.3% at an import duty of 10% by the U.S.
What Europe probably remains is to tax American products subsequently. On balance, public money is then pumped, and nothing has been achieved. For companies that have invested in countries having a trade surplus with the U.S., the grapes will probably be sour. Brewer Heineken, for instance, has invested heavily in Mexico to serve in the U.S. market; Financial damage seems obvious. And when the U.S. unexpectedly throw away its role as custodian of the world trade, China is more than ready to fill the emerged gap with new trade agreements.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.
