On November 8, 2016, the day nearly everyone believed Hillary Clinton would become the first female POTUS, the DJIA closed at 18,332.74, up 73 points from the previous close. That night, Donald Trump was elected POTUS instead and DJIA futures turned sharply negative in afterhours trading, where it hovered for a at least an hour. I went to bed that night thinking we were in for a wild ride the next day and I would need to be making lots of popcorn for the play by play of the next great stock market crash. If there were ever anything that is fabulous to be wrong about, that is the best thing to be wrong about – and I was wrong – the DOW closed up 257 points the next day and was characterized by CNN as “the markets greeting Trump with a bang,” as all the major indices brushed up against record highs domestically.
And it didn’t end there. The closing high from the so-dubbed Trump bump came on January 22, 2018 at 26616.71. So far today (the closing bell hasn’t happened yet) the DJIA is at 24518.35, down almost 8% from the peak. In any language, a 45% increase in the major indices in 5 quarters without there having been something crazy and out of ordinary happening and everything else remaining equal is pretty impressive.
Of course, I bring all of this up because I want to be fair in my criticism. We got some pretty positive AS action going on there that benefits nearly everyone in one form or another. My criticism isn’t intended to be delivered with a blind eye to this. My target is the counterweight of the poor choice of trade policy that shaved 8% off the top (and probably still counting) after having come from the economic crater created by the Great Recession where we all lost so much in terms of time and money with no opportunity to make it up under a regime where bygones being bygones are a feature and not a bug.
However one wants to label it, personally, I have PTSD when it comes to deadweight loss due to policy choice. We cannot afford more discretionary losses.
Moreover, the choice of method for combatting perceived Chinese trade abuses doesn’t make much sense to me even if the rumors of these abuses I’ve been hearing are true: IP theft, forced technology transfers, expropriating foreigners because they can, etc.… It doesn’t make sense to me for the fact that nobody is forced to do business in or with China. Period.
We have the example of Chavez/Maduro Venezuela to look to in order to see the effectiveness of the sort of discipline meted out by markets to abusers. A little more than a decade ago, Venezuela was a functioning, somewhat capitalistic society. Then in came Chavez who started the snowball of abuse rolling down the hill. Over the years, the foreigners packed up and left one by one after business conditions turned too risky. After having run out of foreigners to expropriate, it started eating its own, and is now completely out of any investment appetite at all. The place is an utter disaster with very little hope of redemption in the near term.
Strangely, I don’t see China turning into Venezuela. Because foreign enterprises are still flocking to China, there is considerable doubt in my mind that any of the things rumored to have been happening there are on the order of magnitude alluded to or have the sort of impact described in Trump’s rhetoric that make his actions worth shaving 8% or more off the “bump” and other additional costs involved in reducing AS. If these things were notoriously true, we wouldn’t be having this conversation when there are India, South Korea, Viet Nam, and some places in Africa to go to and do business relatively unmolested, just to name a few alternatives, places that would welcome foreign investment with arms wide open.
What we have here with the tariffs that reduce domestic AS makes as much sense as a neighbor kid misbehaving and Trump punishes his own children for it. Whenever he goes out to justify this idiotic policy, he’s basically saying anyone doing business in China is a moron. They don’t know when they’re being ripped off and are taken advantage of like innocent sheep. But it’s a huge lie. They can and should find greener pastures elsewhere. If they aren’t seeking greener pastures then the rumors are probably just that, rumors.