Global Macro Trading Journal

[Daal]

Trump's trade policy is actually pretty smart. Economists will tell you that free trade is good and all countries should do it. But what they dont tell you is how do you achieve that after decades of trade deals/rounds. The low hanging fruit is gone. The only way global trade can expand a lot now is by having countries that are not playing ball/not cutting barriers enough to become more free traders themselves. Economists can lecture these countries all day but that will only work for so much. There are politics involved and special interest groups. The Trump policy will FORCE these countries to become more open. Tarrifs are a way to threaten them so they DO play ball

How did the FATCA thing work anyway? The US Treasury promised that non-compliant countries/entities would suffer a 30% withholding on all payments, interest, dividend, royality that was paid by the US. That was a financial tariff that was used to get leverage. And it worked. Now there is stuff like the EU automatic tax info exchange, even Brazil (which has no tax treaty with the US) has agreed to tax info exchange. The US lead to a global hunt for tax evaders

The US is in a unique position due its size and influence. Now the battle will be towards calling out the players that are still too protectionists and get them to open up more. These are GOOD things

 

[Daal]

As a trader/investor one has to be careful when dealing with politics, people get too emotional over it. As a result, they can make some giant mistakes. Especially now when US politics are driving everything. Bonds are doing what they have not done in years, if not decades.

A lot of folks are skeptical and are fading Trump because of the sexual comments, the fact that he is rich and has rich friends, the politically incorrect statements, etc. Of course, they dont do it concioulsy but it gets them stirred up emotionally that they miss out on things when looking at his plans. I did it myself. I thought Hillary was a heavy favorite and never really look at Trump deeply. My initial perception was that he was too volatile and his policies were too crazy, that was the consensus. When S&P500 started to gyrate before the election, I started to consider that there was some chance he could him so I gave him a fairer second look. I liked what I saw, and the more I look, the more I like

 

[Daal]

I find a lot of these political debates hilarious, both sides are EXTREMLY good at catching the other side being biased, partial, being intelectually dishonest, etc. If you take the best points from Rachel Maddow or Rush Limbaugh, anyone with common sense would have to accept that they are right and are making a good point.

Yet, it doesnt matter how much you show someone these good points, they will still defend "their" side (or change the topic by counter-attacking). Its happening in Brazil now where the left will cling into any corruption allegation from the right, even though its a tiny piece compared to what is was from the right. They can see the numbers and it wont matter. They will defend their side to the grave. Why? I believe it has nothing to do with the merits of the arguments (deep down, they probably know they are wrong on a lot of these issues), its has everything to do with VALUES

People from both sides have different values based on what they think works and what they think a country should be about. All political debate that doesnt address values will lead to nowhere because no matter how wrong you prove someone to be, you still havent proven that their values are not good/right. So they will stand by "their" side because not doing it would be to behave out of character for them. They can be wrong about a lot of things and its not big deal (even if they dont admit in public), but they still know that "their" side has the right values, so they will still stand by them no matter what

IMO, political debates dont go anywhere because it doesn't address that

 

[Daal]

I think a lot of people are still in the point where they are mad that someone with vastly different values than them was elected. So they wont be able to see things clearly. The amount of wealth transfered over the next few years will be high imo, a lot of market movement and policies will be enacted. Its as important now as it has ever been to leave biases aside and try to make good decisions

 

[AAAintheBeltway]

So I was thinking about this Trump trade policy. I'm starting to think it makes a lot of sense, it could lead to even better global trade

I think you're right.

The US historically has been the biggest market and has run the biggest trade deficits. For other countries, access to the US market is vital. Control of that access should have given the US tremendous leverage to negotiate favorable trade deals. Instead, the US let itself be conned into surrendering that leverage in pursuit of the lofty ideal of global free trade, which trade would be administered by international bureaucrats.

The result has been that the US has been consistently taken advantage of and out maneuvered in trade disputes. Issues like the euro VAT rebates come to mind. Of course, there have been powerful US forces pushing this regime because they saw the opportunity to escape burdensome US regulations and produce goods offshore and then export them to the US tariff-free.

Trump correctly saw the damage this has done to the American working class and brilliantly appealed to them by rejecting the traditional republican love affair with free trade. Your point is very valid. Trump is a dealmaker. He will use the US' massive leverage to our advantage.

 

[Daal]

I think you're right.

The US historically has been the biggest market and has run the biggest trade deficits. For other countries, access to the US market is vital. Control of that access should have given the US tremendous leverage to negotiate favorable trade deals. Instead, the US let itself be conned into surrendering that leverage in pursuit of the lofty ideal of global free trade, which trade would be administered by international bureaucrats.

The result has been that the US has been consistently taken advantage of and out maneuvered in trade disputes. Issues like the euro VAT rebates come to mind. Of course, there have been powerful US forces pushing this regime because they saw the opportunity to escape burdensome US regulations and produce goods offshore and then export them to the US tariff-free.

Trump correctly saw the damage this has done to the American working class and brilliantly appealed to them by rejecting the traditional republican love affair with free trade. Your point is very valid. Trump is a dealmaker. He will use the US' massive leverage to our advantage.

yup. best thing he can do is to put a tariff his first day in office. markets will implode and people will freak out. he gets leverage for 4 years and never has to put a tariff again. effectively, he would throw the steering wheel out the window

 

[Daal]

I cant help but to wonder if the Trump trade tactic wont be particularly good for Brazil. Brazil is one of the most protectionists countries around. Most things are tariffed around 60-80%. There are some exemptions for special items (like capital goods) but importing is quite expensive. We got the most expensive iphones in the world. You got to sell a kidney to have an iphone.

If Trump comes tough on Brazil, it will create some volatility, sure, but it will force the government to bring down barriers and stop protection of cronies. Consumers will save money, inflation will come down (allowing interest rates to come down more). Certain industries will be wiped out but more will benefit. Overall the country will be better off

 

[Daal]

Could Brazil respond by going protectionist and going in a trade war? Very unlikely, all economists agree that free trade is good. This wasnt the case in past trade wars. At this point its all about the negotiation around that free trade. US is too big and powerful, they can bully others into free trade in a way that other countries can't

 

[Daal]

The FATCA thing was interesting because the benefits accrued 100% to the US (all the extra tax revenue from increased tax compliance/fines/penalties) but other countries were stuck with the costs for complying with the legislation. The costs were huge, yet no one wanted to be Iran and effectively be out of the USD wire system. So everyone bended over and took it. The US is a good bully when it wants to be

 

[Daal]

. The costs were huge, yet no one wanted to be Iran and effectively be out of the USD wire system. So everyone bended over and took it.

Question now is, who wants to be Cuba? Nobody, so they will bend over and take it again!