PEEK OF THE WEEK
March 5, 2018
Leif Hagen & Donna Roberts
The Markets
As
Yogi Berra once said: It’s déjà vu all over again.
Last week, global stock markets
took a bit of a dip after President Trump announced a 25 percent tariff on
steel and a 10 percent tariff on aluminum. Tariffs are taxes on goods imported
from other countries. In general, governments impose tariffs to enhance revenue
and/or protect domestic industries from competition abroad.
Tariffs tend to spark fierce
debate about protectionism and free trade. Proponents suggest tariffs may
protect domestic companies and create jobs. Critics suggest tariffs may slow
economic growth and drive prices higher.
Here’s
the thing: tariffs don’t always produce the anticipated results. Let’s take a
look at two examples while keeping in mind that World Trade Organization (WTO)
rules do As Yogi Berra once said: It’s déjà vu all over again.
Last week, global stock markets
took a bit of a dip after President Trump announced a 25 percent tariff on
steel and a 10 percent tariff on aluminum. Tariffs are taxes on goods imported
from other countries. In general, governments impose tariffs to enhance revenue
and/or protect domestic industries from competition abroad.
Tariffs tend to spark fierce
debate about protectionism and free trade. Proponents suggest tariffs may
protect domestic companies and create jobs. Critics suggest tariffs may slow
economic growth and drive prices higher.
Here’s the thing: tariffs don’t
always produce the anticipated results. Let’s take a look at two examples while
keeping in mind that World Trade Organization (WTO) rules do not allow
countries to impose new tariffs unless they are ‘safeguards’ intended to
protect a domestic industry.
In 2002, President George W. Bush
imposed a tariff on steel. While the WTO was deliberating about the action,
“…the European Union ended up hitting Bush where it hurt. The bloc planned
tariffs on a wide range of products, including many produced in key swing
states where job losses could hurt Bush’s chances of re-election,” reported Time. The WTO eventually decided the
tariff was illegal. Eventually, in 2003, the tariff was removed.
In 2009, President Obama imposed a
safeguard tariff on Chinese-made tires. China retaliated by restricting imports
of American chicken feet (a culinary treat in China), reported The Economist. At the time, U.S. exports
of chicken appendages were valued at about $278 million. Guess what happened?
Far fewer Chinese tires were
exported to the United States. However, tire imports from South Korea,
Thailand, and Indonesia doubled, more than offsetting the decline in
Chinese-made tires, reported the Council
on Foreign Affairs. On the other side of the tariff tiff, U.S. poultry
exports to China fell, but U.S. poultry exports to Hong Kong rose. As they say,
when one door closes, another door opens.
In the big picture, it’s unlikely
U.S. tariffs on steel and aluminum will have significant impact on China, the
reported target of the new steel tariffs. After all, China ranks eleventh on
the list of nations sending steel to the United States, reported National Review. Most U.S. steel is
imported from U.S. allies such as Canada, Mexico, and South Korea.
Data as of 3/2/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic
Stocks)
|
-2.0%
|
0.7%
|
13.0%
|
8.3%
|
12.0%
|
7.3%
|
Dow Jones Global ex-U.S.
|
-2.8
|
-1.3
|
17.1
|
3.8
|
4.1
|
0.6
|
10-year Treasury Note (Yield
Only)
|
2.9
|
NA
|
2.5
|
2.1
|
1.9
|
3.5
|
Gold (per ounce)
|
-0.4
|
2.0
|
6.8
|
2.9
|
-3.4
|
3.0
|
Bloomberg Commodity Index
|
-0.6
|
0.0
|
1.3
|
-4.7
|
-8.3
|
-8.7
|
DJ Equity All REIT Total Return
Index
|
-2.6
|
-10.4
|
-5.9
|
1.7
|
6.2
|
6.9
|
S&P 500, Dow Jones Global ex-US,
Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does
not pay a dividend) and the three-, five-, and 10-year returns are annualized;
the DJ Equity All REIT Total Return Index does include reinvested dividends and
the three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s,
djindexes.com, London Bullion Market Association.
Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into directly. N/A
means not applicable.
what
does your state export? Every state has
adopted official symbols that represent its culture and heritage. You can
probably name your state’s official bird and flower. It’s likely you recognize
your state’s flag and its seal. Can you name its highest value export?
The United States exported about
$1.6 trillion worth of goods during 2017, according to The World Factbook. Here
is a list of the states that export the most, along with their highest value
exports:
1.
Texas – fuel oil and
light oil
2.
California – civilian
aircraft, engines, and parts
3.
Washington – civilian
aircraft, tanks, and armored vehicles
4.
New York – diamonds
and art
5.
Illinois – light oil
and soybeans
6.
Michigan – trucks and
passenger vehicles
7.
Louisiana – fuel oil
and soybeans
8.
Florida – civilian aircraft and cellular phones
9.
Ohio – civilian
aircraft and soybeans
10. Pennsylvania – coal and medicine
11. Indiana – medicine and gear boxes
12. Georgia – civilian aircraft and gas turbines
13. New Jersey – fuel oil and jewelry
14. Tennessee – medical instruments and civilian aircraft
15. North Carolina – civilian aircraft and medicine
It’s interesting to note
top-exporting states often are top-importing states. The top 10 states by
import are: California, Texas, Michigan, Illinois, New York, New Jersey,
Georgia, Pennsylvania, Tennessee, and Florida.
Weekly Focus – Think About
It
“So, vision begins with the eyes, but it truly takes place in the brain.”
--Fei-Fei Li, Director of
Stanford’s Artificial Intelligence Lab
Best Regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
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* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock
market in general. You cannot invest directly in this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees,
expenses, or sales charges.
Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S.
Government is seen as a
risk-free borrower, investors use the 10-year Treasury Note as a benchmark for
the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association.
The gold price is set twice
daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in
U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
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Sources:
https://www.economist.com/news/business-and-finance/21737843-get-them-he-causing-chaos-president-donald-trump-wants-tariffs-steel-and (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-05-18_TheEconomist-President_Donald_Trump_Wants_Tariffs_on_Steel_and_Aluminium-Footnote_2.pdf)
