Commentary

Tariff Headwinds Insignificant Compared to Tailwinds from $2T in American Investment

Dan Celia
By Dan Celia | June 22, 2018 | 1:07 PM EDT

New York Stock Exchange (Screenshot)

With new tariffs either imposed or threatened, there certainly has been a rising wall of worry regarding international trade. I have been (and still am) in the camp that sees the talk of tariffs as simply negotiating tactics. Sometimes, when you lay out negotiating tactics, you have to demonstrate a willingness to use them as a starting point.

Maybe that was the intent, but nobody has yet stepped up to the table or shown a willingness to do anything beyond imposing retaliatory measures. So, is it time to truly start worrying about trade problems? Will we start to see an impact on corporate America’s earnings?

Some have suggested that trade concerns, tariffs and negotiating tactics will wipe out much of the benefits we have seen from December’s tax cuts. There are arguments on both sides, but it looks as though we could be getting warnings from companies concerning third- and fourth-quarter earnings forecasts. German automaker Daimler AG, maker of the Mercedes-Benz, is one of those companies indicating they will be hurt by potential tariffs on automobiles. And this will likely hurt their earnings report, according to Bloomberg News.

In addition, India has decided to raise tariffs on a number of American items in retaliation for the U.S. imposing higher levies on some of its products. This is a new and real concern in a significantly growing economy, which continues year after year to export more goods to this nation—everything from manufactured items to automobiles to agricultural products.

India has significant potential for U.S. exports in its future. Now, they join China, the European Union, Canada and Mexico in retaliatory moves. It may be that negotiating maneuvers are occurring. However, if they are happening in the dark of night, we hope for some daylight to be shed on these negotiations soon. On Wednesday—during a discussion at a European Central Bank conference in Portugal—U.S. Federal Reserve Chair Jerome Powell said, “Changes in trade policy could cause us to have to question the outlook.” Powell went on to say, “For the first time, we’re hearing about decisions to postpone investment (and) postpone hiring.”

Of course, this will hurt projections on future earnings from corporate America. That will begin to impact an economy that is just beginning to ramp up. The patience of many corporate leaders is wearing thin with the idea of “let’s just wait and see how negotiations go.” There’s no real sign of any negotiations being started in reference to manufacturing and service sectors, either with Canada, Mexico, the European Union, China or India.

 

On the surface, trade threats seem to be fairly solid negotiating tactics. The question is whether these tactics are heading in a negative direction. As they start impacting U.S. companies’ earnings reports and showing the potential of slowing down or postponing hiring and investments, it’s time to rethink the tactics.

I believe our economy is not as fragile as it was just a couple of years ago. There is certainly an underlying strength that has emerged. Through all this talk about trade wars, I’ve said many times that I believe the headwinds of some trade tariffs and negotiations with our trading partners are insignificant compared to the tailwinds this economy could get by one or $2 trillion coming back to America and being reinvested.

However, the reversal of this year’s headwinds could potentially threaten the growth of our economy for an extended period. If we continue to hear comments after July 4, when the early season begins for projections and threats to corporate earnings from trade tariffs, we will likely see a slowdown by corporate America in its hiring and investments. This will change the outlook for the future of America’s economy.

Hearing about discussions on postponing hiring or delaying investments in America may not just be the beginning of rethinking corporate strategy. It is raising the height of the wall of worry we will have to get over—not only an economic wall but a political wall, as well as the fate of American politics, starting with the November elections. Investors need to keep a close eye on coming economic and political developments.

Dan Celia is president and CEO of Financial Issues Stewardship Ministries, Inc., and host of the nationally syndicated radio and television program “Financial Issues,” heard daily on more than 650 stations across the country and reaching millions of households on the National Religious Broadcasters Network, BizTV, Dove-TV and others. Visit www.financialissues.org.

DONATE


Please support CNSNews today! [a 501(c)(3) non-profit production of the Media Research Center]

DONATE

Or, book travel through MRC’s Travel Discounts Program! MRC receives a rebate for each booking when you use our special codes.

BOOK NOW