Thus far the trade reality is much less dire than the trade banter coming from the White House. However, that banter can have a very negative impact. Economics in the real world is not the cold social science many academics make it out to be. Psychology plays a very big role.
“If something cannot go on forever, it will stop.” – Herbert Stein’s Law
Herbert Stein was an American economist and a senior fellow at the American Enterprise Institute. There are not a lot of economists who get laws named after them, but Stein did. It may seem obvious when one simply reads it, but the idea that something which cannot go on forever will stop is not that obvious when one lives it.
Just when we thought all was safe in the markets, the White House brought out Wilbur Ross. Wilbur is the current commerce secretary and the man behind the threats of a trade war. It’s no surprise that Wilbur’s calming words on CNBC this week about “not a depression” and “not the end of the world” did not calm the markets.
Protectionism was one of the main causes of the Great Depression and helped to create an international environment that eventually led to World War II. The lesson we supposedly learned from this is that trade promotes both prosperity and peace. So, what are these tariffs really going to accomplish and how will they impact our investments?
The market is back. It has certainly been a crazy ride thus far this year. In the aftermath of the recent downturn we have learned more about what caused it, or at least what made it as sharp and quick of a downturn.
