Dear ,
Those that fail to learn the lessons of history!
I'm sure you've all heard that saying in one form or another before. Today I am going to give you a current real life example. It's actually one that I warned about way back in 2009 when I first started writing my No BS Weekly Update.
Before I give you the actual example, let's review a little history. Back at the beginning of the Great Depression in the early 30's, there are two things that many historians and economists agree turned an average recession into a full blown depression. Do you know what those two things were?
Raising Taxes and the Smoot Hawley Tariff Act
One of the things was done by a Democratic administration and the other was done by a Republican administration. The one that we will talk about today was done by the Republicans and it was the Smoot-Hawley Tariff Act of 1930. The goal of the Smoot-Hawley Act was to protect American Jobs.
The method that they chose to do that was to raise the tariffs on over 22,000 products to record levels. These products were made in other countries and imported to the US. Unfortunately what they hadn't figured into the calculation was that the other countries could retaliate by putting tariffs on our products that we sold to other countries. The results?
"the act, and the ensuing retaliatory tariffs by U.S. trading partners, reduced American exports and imports by more than half."
That's right. The act cut exports and imports by more than half. Instead of protecting American jobs it had the exact opposite effect, it cost American Jobs. Lots of them. For the companies that made money importing products, the tariffs made their products more expensive and so they didn't sell as many. That meant that they had to let workers go and many of those businesses failed. For the companies that exported products, because of the retaliatory tariffs enacted by other countries, their products were no longer price competitive in the countries that they were exporting to and so they also had to let people go and many of those businesses failed as well.
You can read more about this issue here.
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Fast Forward to Today
Now here is how it is playing out today. In 2009 the Obama administration put a large tariff on all tires coming into the country that were made in China.
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I predicted at the time that you would see China put a tariff on US made automobiles. Why? Because China is the biggest car market in the world. The top selling cars in China were GM and it would be the quickest and easiest way to retaliate for the tariff that the US just put on Chinese tires. Well look at this headline from last week.
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What many don't realize is that it isn't a one way street. Despite all of the manufacturing jobs we have lost over the years, the US still manufactures more goods than any other country in the world. We manufacture more than China. We manufacture more than Japan. We manufacture more than Germany, France, India, and Brazil combined. We manufacture 20% of all the goods made in the world. As a country we export $1.3 trillion dollars a year. That amounts to 9% of our economy. (Source:http://en.wikipedia.org/wiki/Economy_of_the_United_States#International_trade)
So How's That Strategy Working?
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Apparently not to well. Before the tariff sales of GM products were growing at the rate of 50% year over year. Today sales in China are only growing at 11%. Now in a maturing market sales growth of 11% would be something to be proud of but in an Emerging Market like China? Come on!
The 2012 Reames Financial Half-time Report: The Certainty of Uncertainty
Just a quick heads up that the 3rd Annual Reames Financial Half Time report is coming up. In our continuing effort to leverage the internet we will be doing this year's Half Time Report as a live webinar. We will take a look at how things have gone for the first half of the year. We will look at how that compares with last year at this time. And we will talk about where we think things are going and what opportunities we think are worthwhile.
The theme of this year's Half Time Report will be "The Certainty of Uncertainty". The date will be July 24, 2012 at 7:00 PM. Please put it on your calendar now. More information will follow.
Until next week , Protect Your Wealth!
Sincerely,
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