A great stock to short for the coming trade war with China is Wal-Mart. Wal-Mart gets many of its products from China and other countries which is why they are known as a “discount” retailer.
A Trump Administration will likely favor American-made goods and place tariffs on foreign-made goods. A Trump Administration could rewrite various trade policies that companies like Wal-Mart have benefited from.
Wal-Mart Stock Chart
Wal-Mart is a powerful corporation with a lot of money and so shorting Wal-Mart stock is something that only advanced technical traders should attempt.
Disclosure: I do not hold any position in any stock mentioned in this article.
A trade war between the US and China is likely going to start next year with a key promise of Trump to declare China a “currency manipulator” on day one of his Presidency and to enact a 45% tariff on certain Chinese produced products sold in US markets.
China has threatened to retaliate by dumping Boeing and instead ordering from Airbus. China has said it will block sales of US automobiles and iPhones in China and that US soybeans and maize imports will be halted.
To better understand why I think 3D printing stocks are a good play on a trade war with China, we have to go back in history and use macroeconomic analysis to see how we got to where we are today.
China Joins the WTO
In 2001 China joined the World Trade Organization and began flooding America with illegally subsidized exports. Over the next ten years, the US would shut down over 60,000 factories, lose more than 5 million manufacturing jobs and see it’s historical annual rate of GDP growth cut by two-thirds.
Trade Deficits and Offshoring Subtract From GDP Growth
As a result of China joining the WTO, structural problems hit the US, Europe, and other major economies like Japan and South Korea.
If a country like the US runs a trade deficit, this directly subtract’s from its GDP growth. From that observation, you can see what the two most important structure drags on growth for many developed nations like the US have been.
The first has been the drag of the large trade deficits. The second has been the drag on lower domestic investment growth, as multinational corporations like Caterpillar, General Electric, and General Motors, have built more plants in other countries and fewer plants in the US.
Where have most of the offshoring of productions gone? The answer is China.
It’s no accident that the start of America’s era of slow growth in 2001 coincided with China joining the World Trade Organization or WTO, which gave China full access to American markets.
Contrary to the rules of the WTO, China began to flood the US with cheap, often illegally subsidized exports, and over the next decade and a half; the US would see the loss of over 60,000 factories and more than 5,000,000 manufacturing jobs.
The Emergence of Structural Trade Imbalances
During this time the economies of Europe, India, Brazil, among others, would likewise begin to have significant growth-sapping trade deficits with China and this would reduce global growth below what it would otherwise be.
The result would be the structural emergence of a growth-sapping global trade imbalance, as illustrated in the following set of figures.
Here, we see chronic annual trade deficits on the order of 200 to 400 billion dollars annually, with the heavily exported China.
By the year 2012, these deficits would help slow growth dramatically in both Europe and the US, and as a result, China’s two biggest customers would thereby be too weak to sustain China’s export-dependent growth.
In a ripple effect, slow growth in China, in turn, would lead to slower growth in so-called commodity countries like Australia, Brazil, and Canada, whose economies depend heavily on the sale of natural resources like coal, iron ore, and soybeans to China. More broadly, these structural trade relationships would lead to a new type of butterfly effect the world had not yet seen.
Here, we see that weak demand for Chinese exports from Europe and the US leads to weak import demand from China for commodities and other natural resources. In this way, chronic trade imbalances between China and other countries around the world would make it very difficult for a robust, global economic recovery.
Why Keynesian Stimulus Failed
From this butterfly effect, you can see why expansionary, Keynesian fiscal and monetary stimulus in the US and Europe, did not have the full effects anticipated. Indeed, this short-run Keynesian approach did nothing to address the underlying, chronic, long-term structural trade imbalances, acting as a drag on both the U.S. and European economies and by extension, much of the rest of the world.
3D Printing and China Manufacturing
China is rapidly losing ground to 3D printing technology. The business model of it being cheaper to manufacture goods in China could come to an end over the next ten years.
US companies will soon be able to make most things in small 3D printer factories right in your neighborhood or town. Factories, as we know them today, will get broken up and made smaller and local. Newsweek writes…
In the distributed manufacturing scenario, the carbon footprint, so to speak, of each shoe drops precipitously. Asian manufacturing is toast, probably upsetting the global balance of power. And factory jobs—well, they’re likely never coming “back.” 3-D printing automates a lot of what factory workers would’ve done. The hope is that distributed manufacturing creates a whole new set of opportunities for middle-class workers and keeps money local instead of funneling it overseas.
Coming Trade War With China
A Trump Administration will be placing tariffs on Chinese-produced goods effectively penalizing US corporations that manufacture products in China. China will retaliate by blocking the sale of US goods inside of China.
This trade war with China will only speed up the adoption of cheaper and faster 3D printing facilities inside the US IMO.
Many US businesses could increase their purchases of 3D printing machines as a result of the worsening trade relationship with China as well as the public outcry over the loss of millions of US jobs to China.
The earnings recession which began in Q1 2015 prevented businesses from buying 3D printers as consumer demand was uncertain. This last quarter we saw an end to the earnings recession, and if corporate earnings continue to rise, we could see more companies buying 3D printers.
Big Players and Big Money Flowing Into 3D Printing Technology
In May of 2016, the 2D printing giant HP revealed that it has been spending billions of dollars developing 3D printing technology and announced the release of its Jet Fusion 3D 3200 and 4200 printers. The more powerful 4200 was slated to begin shipping in the fall of 2016, while the 3200 will be available in 2017. HP claims these polymer 3D printers are up to 10 times as fast and twice as cost-efficient as current 3D printers powered by the leading technologies. HP sees the incredible future for 3D printing and aims to become the leading 3D printing company.
3D Printing Stock Chart
Chart Comments: Not a great looking chart. Twiggs Money Flow is rising but still below the 0% line. The 50-day moving average (blue line) at $15.21 is currently being tested, and a breakout above this level would be bullish.
Stratasys Stock Chart
Chart Comments: Stratasys’ chart looks even worse than DDD. The Twiggs Money Flow is rising nicely, but it is still below the 0% line.
HP Inc Stock Chart
Chart Comments: Twiggs Money Flow falls below 0% line after missing on revenue; however, overall, the strongest looking chart of the 3D printing stocks. Fantastic valuation at P/E 9.9 and forward P/E 9.2. Wait for candle over candle bounce before taking a long entry.
Disclosure: I do not hold any stocks mentioned in this article.
We know what Trump is bringing to the globalists brawl that has already begun with shots like China threatening a trade war against the US. Globalists are not going just to roll over quietly for a Trump Administration.
Lisa Haven thinks that globalists could crash the US economy in response to Trump’s win. Lisa thinks globalists could even try to assassinate Trump.
I think Lisa Haven is a bit too far on the side of paranoia, but I like hearing alternative views and some of the excellent points she makes. Regardless if you agree with Lisa Haven or not, one thing is clear that we can all agree on. Stock prices are not up because of fundamentals but on risky speculation on a Trump win which begs the question. Are we being set up for a big stock market crash?
Protectionist policies in the form of tariffs and quotas are coming from a Trump Administration. It seems appropriate then that we examine tariffs and quotas from a macroeconomics perspective.
The two most common ways of restricting trade are with tariffs and quotas. From a political point of view and to prevent a trade war, a Trump Administration should consider the use of quotas over tariffs in some cases.
This figure illustrates the domestic market for food in Europe.
The equilibrium between supply and demand occurs at point A at a price of $8, and quantity of two hundred. Now, suppose that food is available in an unlimited amount from the rest of the world, at a price of $4 per unit and Europe doesn’t like this because it hurts their farmers.
The world supply curve is represented by the red horizontal line. In the absence of any transportation costs, the food price in Europe must be equal to the world price of $4. At the $4 price, you can see that European domestic production is measured by the line segment B, C and will be one hundred units, considerably less than before free trade.
American imports are measured by the line segment C, D and are equal to two hundred units, and revenues from the sale of these imports are equal to the shaded area C, D, E, F.
Now let’s say that European trade ministers impose a tariff of $2 per unit on food imports, where a tariff is a tax levied on imports. What happens now to domestic production and imports?
Clearly, domestic producers win because their production not only rises by fifty units, but their profits rise by the shaded area B, C, H, G.
European food consumers lose, not only because the price of food rises from $4 to $6, but also because they consume fifty fewer units of food. In fact, the total loss to consumers is measured by the area B, D, I, G.
The other big loser is the American food industry, which now exports one hundred fewer units and loses revenues equal to the shaded areas C, J, L, E and K, D, M, F.
The winner is the European governments that imposed the tariff. They collect tariff revenues, equal to the area H, I, J, K.
The Politics of Tariffs
From a political perspective, a relatively small handful of people in one domestic industry, farming, have gained a considerable profit at the expense of a much larger, but politically less powerful group, food consumers.
This protectionist tariff has also considerably harmed food producers in America, and this group is unlikely to remain silent on the tariff.
Why Quotas Trump Tariffs Politically
One likely result is that pressure will build politically in America to retaliate against European food tariffs with protectionist tariffs of its own, perhaps on European clothing imports. There is a way for Europe to avert this trade war and it’s with a quota which is an exact quantity limit on imports.
An equivalent quota, in this case, would be a one hundred unit limit on American food since that is the level of imports after the $2 per unit tariff.
Under a tariff, the shaded area H, I, K, J goes to the European governments in the form of tariff revenues. However, under a quota foreign exporters (American food producers) will be able to capture these revenues which will mostly offset their losses from selling fewer exports. The result in America will be far less political pressure from food producers for retaliatory tariffs.
Whenever a government interferes in a free market, there is usually deadweight loss. There is deadweight loss associated with the imposition of a tariff or quota. In fact, the loss is the same regardless of whether a tariff or quota is used.
The shaded area C, H, J, represents the loss in producer surplus. In this case, too many European resources are being diverted into the inefficient production of food, at the expense of production in other sectors. At the same time the shaded area K, I, D represents the loss in consumer surplus and the loss in consumer satisfaction, from consuming fewer units of food. Together the two shaded triangles measure the total deadweight loss from tariffs or quotas.
Source: This lesson was made possible by the University of California Irvine and my favorite professor Dr. Peter Navarro, now economic advisor to the Trump Administration.
Do you remember when the WSJ, CNN, CNBC, NBC, ABC, CBS, Bloomberg, Forbes, and Reuters ran stories at the start of the year about how no one even knows who was advising Trump on economic matters? They even went as far to say that Trump had no support of any economists.
That never sat right with me. I saw what Trump was doing at every level and how it would impact GDP. For example:
Border security = Eliminate illegal workers from coming into this country and competing with American citizens for jobs. Macroeconomic impact of illegal immigration discussed here. The mainstream media tried to convince the public Trump was a racist, bigoted, xenophobe who will send the police around knocking on doors to check your citizenship status.
Renegotiate international trade agreements = Look at all international trade agreements and renegotiate them so that they are fair to America and its workers. Penalize currency manipulators like China and Mexico. Increase exports and reduce imports as imports subtract from GDP. Macroeconomic analysis of trade deficits here and also here. The mainstream media tried to scare everyone into thinking that Trump was bringing in dangerous “nationalism” and that Trump will start a trade war which will crash the economy and stock market.
Significantly reduce refugees = Block all refugees coming from Syria and other Muslim countries if we cannot do a background check and make sure they are not radical Muslim terrorists coming to America to kill Americans. Terrorist attacks are bad for the economy and stock market. The OPEC cartel has been illegally manipulating the price of oil for decades (although Game Theory explains why they haven’t been too successful at it). Make OPEC countries take care of their neighborhood with all their ill-gotten gains over the years. Establish safe zones in Syria and elsewhere for Muslim refugees. A macroeconomic analysis of the OPEC cartel is discussed here. The mainstream media stirred up Muslims and other races by claiming Trump was a xenophobic racist on the order of Hitler and that he has a vision of a “white” Klu-Klux-Klan America.
Lower taxes = Lower taxes and institute supply side economics like Reagan did during the 80s. Higher taxes result in an increase in deadweight loss. Lowering deadweight loss will improve efficiencies in the economy and lead to both greater demand and supply. A macroeconomic analysis of taxation is here. The mainstream media stirred up class-warfare claiming that everybody should “pay their fair share” when it comes to taxes and that Trump’s tax plan will just allow the rich not to pay their fair share.
End ObamaCare = ObamaCare is a big tax on businesses. ObamaCare passed because Obama and Democrats lied to Congress and the American people about who was going to pay for it. It takes from the value producers and job creators, and gives to illegal immigrants and lower value producers, causing inefficiencies and disincentives in both hiring and working. Worse, it has lowered the quality of healthcare for everyone with long waiting lines and more doctors not accepting new patients. A macroeconomic analysis of ObamaCare is here. The mainstream media told everyone that Republicans just want to take away your healthcare so that they can get even richer.
Guess Who Is On Trump’s Economic Team?
I had to ask myself, was I just biased towards Trump and was I just twisting Trump’s positions into macroeconomics because I support him for President?
It now makes sense why I so clearly saw what Trump was doing while so many others did not. My economics professor is advising the Trump team! LOL.
Papa Giorgio posted a recent audio interview on Talk Radio with Peter Navarro:
MSNBC which supports Hillary Clinton had Peter Navarro on under the pretense of a serious talk about the economy. MSNBC then tried to talk about everything but the economy and trap Peter Navarro. Check out this heated exchange: