The Stakes Have Risen

On this morning’s Trey Ware Show, Karl and Trey discussed the latest regarding the trade war and the tariffs.  The market volatility has returned and may be here for a bit.

Trey Ware:                         President put out a tweet about an hour ago. Said, “An unexpectedly good first quarter, 3.2 GDP. Greatly helped by tariffs from China. Some people just don’t get it”, says the President. He also put one out over the weekend that said, “I say openly to President Xi that all of my friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal almost completed and you backed out.”

Trey Ware:                         Today, the conventional wisdom is the Dow set for an over more than 300-point drop as China and U.S. tensions rise. Well, let’s get more on that. Karl Eggerss from joining me on the Stephens Roofing Newsmaker Hotline. Are you anticipating that kind of drop this morning, too, Karl? Or what?

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Karl Eggerss:                      Yeah, probably a little worse, actually. We just got some news breaking across Bloomberg that China is now retaliating on some things, and so we’re seeing that. Saying in June they’re going to start increasing some of their tariffs, so this whole fear of a full-blown all-out trade war is right there front and center again. This started in January of ’18 and it went all through 2018 and then it kind of started to simmer, and early this year, obviously we started to see progress.

Karl Eggerss:                      Now, we see that China seems to have kind of gained some confidence and backed out of some of the promises they had made, and that led to some of these tweets. The power of the tweets is what’s moving the markets right now.

Trey Ware:                         When you look at this, how significant is this? What types of products and how many products are we talking about with these tariffs? On both sides, with us and from China?

Karl Eggerss:                      Well, you’re talking about agricultural products. China is basically saying they won’t buy as many agricultural products. This is probably aimed at the technology sector a lot, so it’s going to affect a lot of things across the board, and again, nobody likes this. The President is coming out and convincing people that it’s great and he’s saying, “Look, this is going to be good for the U.S.” That’s his negotiating stance.

Karl Eggerss:                      He’s saying, “We will do this and it’s going to be good for us, so if you want to play ball, fine. We will talk, but right now, we’re going to be increasing these tariffs.” We do have more negotiations set in the next few weeks, but right now, the tariffs are in place and it seems like we’re at kind of a stalemate again and the market is going to be kind of bouncing around here until we get some resolution.

Trey Ware:                         For those who are in a panic about this, are we being a little shortsighted? The reason I ask that, Matthew Continetti mentioned this last week. He said, “Look, a lot of people are focused on the stock market on this and how the stock market is reacting to it, and of course, it’s all based on emotion.”

Trey Ware:                         He said, “The real thing that we need to be thinking about is long term, that Trump is playing a long-term game here and this is about who is going to be the world’s economic leader in so many different ways going forward for the 21st century. That China is asserting themselves, not only economically but militarily and in cyber world and in every other way, that they are asserting themselves trying to become number one. Trump is pushing back saying that is a position that we are not ready to give up here in the United States and that he is fighting that as a long-term war. We’re caught up on the day to day, the stock market is going down 300 points, but that’s not the big issue. The issue is here, you have to win the war, and along the way you may lose a few battles.”

Trey Ware:                         What do you think about that?

Karl Eggerss:                      Well, I think they’re correct, and it’s interesting. You notice that many Democrats are behind this, right? Nobody’s willing to have this fight with China expect President Trump, and even some Democrats are saying we have to do something. Nobody likes tariffs, including me, but at the same time, nobody has given any other solutions to this other than tariffs.

Trey Ware:                         That’s right.

Karl Eggerss:                      You notice that? Everybody that’s criticizing tariffs are saying, “These are bad, these are horrible”, but they’re not saying the second part, which is, “What they should do is this.” Including me, I don’t know a solution other than tariffs, and so I don’t like the tariffs, either, but I do think it’s getting China’s attention and there’s no doubt that China is in a weaker position than the United States. There’s no doubt about that, and there was an article in The Wall Street Journal last week that came out that essentially said because we’ve been calling for, “we” meaning the United States, calling for lower interest rates, Larry Kudlow and President Trump, that told China that, “You know what? Maybe the U.S.’s economy isn’t as strong as they’re saying. Therefore, we can be a little tougher on this trade deal.” That’s what some of this preempted by.

Karl Eggerss:                      I don’t know if that’s the case or not, but the bottom line is, President Trump is going to go through with these tariffs as we’re seeing, and the market doesn’t like it, but at the end of the day, like you said, this is not about the battle. This is about the long-term war, and nobody else is willing to do anything with China except for President Trump.

Trey Ware:                         Nobody had any answers…

Karl Eggerss:                      Well, and by the way, I think that’s why we were quick to do the deal with Canada and Mexico because you want more people on your side during this whole process.

Trey Ware:                         Right. Well, and finally we have a leader that is actually on our side, who is putting the United States’ interests ahead of the world interests. When these deals were negotiated, and I remember when NAFTA was done, it was in the ’90s and I was doing this show here, and it was all about making sure that Canada and Mexico got what they needed and not so much about what the United States needed. Now, with these resets that we see going on, and of course, we almost got into the TPP, which was going to be something that was going to be a reset for the world and less for the United States, Trump is coming along and he’s trying to realign this and say, “The United States first, and if the United States leads and wins, the rest of the world is going to do well.”

Karl Eggerss:                      Well, and people need to realize, look, he’s doing what he thinks is best for the country. Otherwise, he could make the Dow Jones go up, right? All he’d have to say “Okay, let’s just sign this deal and get done with it”, and

Trey Ware:                         Exactly.

Karl Eggerss:                      The market would be up, so-

Trey Ware:                         Exactly.

Karl Eggerss:                      He’s putting his Presidency at risk here, he’s putting the market at risk, but again, he thinks it’s for the long-term benefit of the country, and it is. It’s just a sloppy way to get there, but there’s no other way to get there. I don’t see another way to get there other than to be tough.

Trey Ware:                         You got to throw a few punches. Karl Eggerss, thank you, man.

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