There is a very good chance that most of you will have seen the Walt Disney’s animation film Fantasia, which came out in 1940, and which contained a very famous segment called The Sorcerer’s Apprentice. Many of us are probably already humming the music. The story, if you recall, involved a magician’s apprentice who was so keen to emulate his master that he set a spell upon a broom to carry buckets of water. The only trouble was that he didn’t have the magic to know how to stop it. Potential disaster was in the cards.
This memorable piece of film works as a parable, warning us of what happens when we get involved with something which swiftly gets out of control, and that brings me nicely to the subject of tariff traumas.
The American President appears to be a simple soul, in that his attention level seems to be somewhat transient and can easily be distracted to another subject – especially if it involves him in a flattering light.
By way of example, we can look at his understanding of import tariffs. As far as he was concerned these were very damaging to America (and in certain areas he has been quite right to highlight some unfair practises and costs) and that by increasing the tariff charges on certain imports, the U.S. will suddenly see a surge of extra money coming in. He was boasting about huge sums benefitting the country’s budget and in the short term he will be right.
However, the topic of tariffs does not end there, and nor does it end with the counterpart in the trade slapping on extra duties on goods going the other way. This then is where the Sorcerer’s Apprentice (aka Donald Trump) finds that he cannot control the knock-on effects of his excitable but ill-judged actions. And so, as with his television series The Apprentice, the Donald is now featuring as an apprentice himself, rather than as a judge. He had better be careful, though, because in Fantasia the apprentice was played by Mickey Mouse, whereas Donald might find his part turning into a caricature played by a confused Donald Duck.
So, what are the unforeseen issues which the Apprentice does not seem to see?
The biggest impact of any tariff trouble is that it upsets the current trading systems and will erode confidence of companies, countries and consumers as they cannot be sure what is going to happen next. And so, adhere to that crucial rule: when in doubt – stop! In essence tariff trouble will lead to trade disruption and if it is not addressed swiftly, a slowing or weakened economy can find itself going into recession. The net result is that all parties end up earning less from their tariffs as the trade on which they are based has dramatically slowed down.
So, the President would have to then realise that although raising tariffs did initially give the U.S. an extra boost of short-term monies from higher duties, the knock-on effect could reverse any such gain and in fact make things far worse. Of course, by this stage the President’s attention will have been caught by the next fleeting topic or profitable deal. Which, by the way, might have been that astonishing order for hundreds of Boeing aircraft – and by way of interest I noted that the company’s share price seemed to rise by around 35 percent before his visit to Saudi Arabia and any mention of such an order. Somebody must have had a hint as to what was going on.
To be more controversial, though, I think that the President has been right to shatter the economic complacency that seemed to be accepted around the globe. There are very serious areas that need addressing and it would have been far easier to let things just amble along. After all, we have dangerous military conflagrations, many nervous consumers as seen in the United States’ consumer confidence data, high levels of debt, Moody’s downgrading the quality measure of U.S. debt (thus increasing its costs) and some lurking inflation to be managed.
So having a President challenging the “norm” has brought a shock to much of the globe, but now is the time for some calm and for some clear minds to settle the economic nerves. As part of this we need to have China working with the States to manage their trade issues as their economy is also showing significant signs of weakness, and a tariff war now would damage us all – in fact, especially China, which already has ships laden with containers of Chinese consumer goods struggling to find a home, as orders are already being delayed or even cancelled.
So, the President needs to be careful as today’s crowing about all this extra tariff income could easily be reversed into tomorrow’s recession. A recession is not a certainty, though – however its chances are increasing if the tariff tantrums continue. What is needed is for all parties to agree to new acceptable levels and that vital word is brought back into our economy – confidence.
China and the U.S. are in a symbiotic relationship – they may argue and disagree, but they need each other. After all, who is China’s largest customer? The U.S, and the U.S. needs China to keep buying its increasing debt.
Time then for egos to be reined in and common sense to prevail – and please can someone take the broom away from the new Apprentice before he does any more damage!