A Few Thoughts On The Tariff Discussion

| May 08, 2019

1. The definition of a tariff from the US Census Bureau and the World Trade Organization is:


Customs duties on merchandise imports. Levied either on an ad valorem basis (percentage of value) or on a specific basis (e.g. $7 per 100 kgs.). Tariffs give a price advantage to similar locally-produced goods and raise revenues for the government. (Source: World Trade Organization)

Importers pay the tax. Everything that says made in China is imported. The "coffers" being filled with money from US companies, not the Chinese.

2. Balance of trade has been trending worse since 2016, unsurprisingly. (Not that it really matters, but to people that think it does this should mean something)

3. Originally, the tariffs were for steel and aluminum from China which should help the steel industry here.

US Steel (X) stock is down 54% (from Morningstar 5/6/2019) since February 18 when the tariffs talks started even with higher intra country demand. Growth estimates (From Yahoo! Finance 5/6/2019) are not very good down 50% for the year and 11% for next year. It was growing at 13.66%. Not that the tariffs caused this, but they should have helped.

4. US companies are planning to avoid tariffs by boosting their operations in other neighboring countries. This restructuring will reduce the tariff income in the long run and cause supply chains to be disrupted in the short run.

I always try to look at a silver lining and what could go right. The main upside would be using this as a negotiating tactic to lower all tariffs, but not sure of the outcome. If that is what happens this might all be worth the trouble. However, what the president says his current reasons for doing so are very wrong and the policies are actually doing the opposite of what he says. So far, it is looking like an expensive economic lesson for the current administration.

Disclosures: This is not investment advice and is not intended to be a recommendation to buy, sell or hold US Steel (X) or any other security and is intended as informational purposes only. This is the opinion of Ryan Moseley and does not necessarily represent the views of Moseley Investment Management.