Where will the markets go next? What are the influencers of the markets today? Well, where the markets will go is anyone’s guess, but it is apparent that Washington will influence what could happen in the markets. Up or down is anyone’s guess and anyone who tells you otherwise is selling you something that is not the truth. A few weeks ago I wrote about how the economy is doing well and again Washington would play an important role in what happens next with the US and the global economy as a whole.
I still say that the US economy is doing well and is strong, but that may be tested in the coming months. After that post, one of my uncles told my mother that I was crazy to think that the economy is doing well because in the small part of the country where he is from the economy is not doing well in his words. Well, for the vast majority of the people in the country the economy is doing well as we see in extremely low unemployment figures, there are not enough workers to fill the jobs we currently have, interest rates are still low despite the fact that they are rising slowly and just about every company is reporting strong earnings. So where in the country is the economy not doing well and what part of the economy does that part of the country play a role in?
In this case, that portion of the country is the Midwest, and the portion of the economy is agriculture. Now, my family is from the Midwest and has been in agriculture for several generations, and yes they are still facing hard times. But the problem is that they have been facing them for years as farming, once the backbone of the US economy gave way to manufacturing many decades ago. Then the small farm became an endangered form of business with the creation of large corporate farming operations. And then something happened, manufacturing gave way to the service industry as the new backbone of the US economy. And the farmers still think it is the start of the 20th Century and that farming is the backbone of the US economy.
Yes, farming is still a large part of the economy, but it is nowhere near a large a part as it likes to think it is. In fact, if it were not for the taxpayer’s federal subsidies the majority of farms would not be profitable or even in business today. But this small section of the economy has a powerful voice in Washington which provides it with lifelines in the form of government subsidies on prices for the products they grow and produce, provide government-sponsored insurance at low premiums to insure the crops against all sorts of disasters, and lobby to keep these in place. Now, I am not saying that these things should not exist because they do serve a purpose but we as a country are doing the same thing that other countries do with certain industries in their economic system, and the US declares that unfair trade practices exist. Yes, it is the same thing we do by protecting a section of our economy and by artificially propping up prices to allow that section to remain profitable for the most part.
Washington wants new trade deals, and instead of forming alliances to achieve fair trade deals such as the Trans-Pacific Partnership and NAFTA we are using a self-destructive tool to try and force better trade deals, the tariff. Yes, parts of the global economy may not utilize a level playing field, but a collation of countries acting as one can have better and longer lasting effects on rogue countries operating within the overall global economy. But as it stands the US is fighting the entire world in what will result in pain and suffering for the average US consumer. While Washington is using tariffs as a tool of negotiation other countries are using it as a scalpel to hurt us in strategic areas. In basic terms, we are playing checkers while the other countries are playing chess.
Except for intellectual property, there is not much produced in the US that cannot be obtained from other countries. In fact, as Harley Davidson showed by moving production out of the US, our companies can even avoid the retaliatory tariffs of other countries. Most of the US’s S&P 500 are based in the US but are really global players with operations in many different parts of the world. This is what makes the US the number one economy, not a balance sheet statistic that shows a trade deficit with some country. As I stated, we make up a mere 6% of the world’s population yet command the largest economy. That tells me something is being done correctly and while there are trade imbalances that do not infer that we will not maintain our spot atop the global stage. As a country, we must think strategically and use our trade partners we had before these protective tariffs to establish fair trade and continue to be the world’s leader in this global economy.
If my uncle thinks that the economy is bad now, I truly feel for him because with the direction that Washington has us going it will get much worse for the agriculture sector and the rest of the US as well. The last full-on attack that the US used tariffs to protect the US economy led to the Great Recession. History does repeat itself at the most inopportune times and regardless, by the historical numbers we are due for a bear market. That combined with Washington’s actions there is a real possibility that another recession in on the horizon.