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11 May 2019  (497 Views) 

America raised tariff on China imports
America has raised tariff on $200 billion of China imports to 25%. They threatened to impose the 25% tariff on another $200 billion of imports. 

The global stock markets have recovered. The investors bet that this is a temporary situation and that a trade deal will be agreed. 

The investors are likely to be mistaken. I expect that the tariffs will stay as they provide revenue to the American govt. 

I also believe that the tariffs will be good for America and that other countries should introduce tariffs as a source of govt revenue and also to protect some of their local industries and jobs. 

I do not agree with the way that President Trump is running his country, but I believe that his move on introducing tariffs is correct. The American govt needs the revenue to reduce the budget deficit. It cannot continue to rely on borrowings. 

The media said that ultimately it will be the American consumers who will pay for the tariffs. I disagree with this view. 

The cost of the tariffs will be shared between the American consumers, the exporters (who may be China owned or foreign owned) and the people of China through a depreciation of the Chinese yuan. 

President Trump should not complain about the depreciation of the yuan. It is the result of market forces and is necessary for the adjustment to this tariffs. 

There is nothing wrong with an increase in consumer prices in America caused by the tariffs. Many countries have VAT or GST that adds to the prices paid by their consumers. Tariffs is an alternative to VAT and is a more efficient way to collect revenue for the govt. I prefer tariffs to VAT any time.

The investors expect that the tariffs will be temporary and that, after a trade agreement is reached, life will return to the status quo before the dispute. They will be mistaken.

I expect that tariffs will be a permanent feature of the future economic arrangements and that corporate profits (which are now at a high level) will reduce. This will mean lower stock prices. The current high profits and stock valuation cannot be justified. 

I expect the global stock prices to fall from the current high valuations. It will not be a disaster. Stocks will continue to give a good dividend yield and a modest appreciation. But they need to correct from the current high levels.

This is just my common sense view. Many "experts" will not agree with me. Each of us is entitled to our views. 

Tan Kin Lian

Vote - do you agree with my view that tariffs and the prospects for the global stock markets?


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