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The Bear Case On Tariffs Is Not Strong - Cramer's Mad Money (3/5/18)

Mar. 06, 2018 7:34 AM ETMETA, AMZN, NFLX, GOOG, TSN, CAG, DPZ, NUE, TSE, GOOGL5 Comments


  • Nucor CEO John Ferriola argues in favor of tariffs being imposed.
  • Trinseo is an underrated stock.
  • Cramer prefers ConAgra over Tyson Foods.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, March 5.

When Trump announced tariffs on steel and aluminum, Cramer discovered that money flows from where it's scared to where it's safe. "We saw this happen late Friday afternoon. It occurred again today," the Mad Money host said. The idea behind tariffs was to curb steel and aluminum dumping, and bears fear that trade partners will retaliate with their own tariffs that will lead to a trade war.

He believes that bear case is not strong enough, as the Chinese need the US markets too, since they are an export-oriented economy. They would not do anything to jeopardize it and risk a trade war. There have been no earnings estimate cuts from these actions yet, and the US is still a strong economy to offset any weakness in metals.

Some other reasons for the bear case not being strong enough is that Republicans will push back any additional trade actions and the tariffs just add a tiny amount to consumers' costs, while the recent tax cuts adds more to the pocket.

Cramer said this is leading to investors fleeing for safety to FANG stocks, for example. Facebook (FB) is safe, as it does not have a lot of Chinese business. Amazon (AMZN), on the other hand, is safe as China already has an e-commerce giant. China doesn't have Netflix (NFLX), and Alphabet (GOOG, GOOGL) is prohibited too. "Of the huge international companies I follow, Alphabet may be the least shortable off of the Chinese retaliation fears, or, you could say, the most buyable," said Cramer.

"The retailers are largely domestic, even if many of them sell merchandise that's made in China. The financials, with the exception of some very large banks, don't have China exposure. Healthcare? I don't think so. Those groups

This article was written by

Mohit is the former Managing Editor for the Breaking News (India team) at Seeking Alpha. Currently working with Benzinga, he was with Seeking Alpha from January 2010 until August 2020. Before joining Seeking Alpha in January 2010, he worked with a start-up equity research firm in the capacity of a Team Leader tracking US company events and results.Born in the U.A.E, he spent most of my growing up years in Dubai. Currently, he resides in Mumbai, India.

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Comments (5)

Nick Dorset profile picture
VAT is a sales tax levied on all sales inside the EU, so it would apply to all EU made steel as well, or for that matter Chinese steel coming into the EU. It can be offset against any purchases Nucor makes inside the EU, which are also liable for VAT ( virtually everything has VAT levied on it).
From memory Florida has a 6% sales tax- this is not levied on steel sales from Pennsylvania?
Nucor is a U.S. company so it doesn't have purchases made inside of the EU to offset their VAT payments. Thus, their exports are fully subject to the VAT tax (as are all other steel exports to the EU).

EU exports have the VAT rebated to the EU producer so there are no VAT taxes paid on their exports including steel exported to the U.S.

The U.S. does not charge normal import duties or sales taxes on the EU's exports to the U.S. (AD/CVD duties could apply).

The comparison was based on national treatment. I do not know if Florida has a sales tax which applies to steel but that is not relevant to the comparison which was made (VAT tax applicable to U.S. exports to EU but no national taxes on EU exports to the U.S.).
Maybe the EU will pot a tariff on every dollar the US government sends to NATO!
Nick Dorset profile picture
The CEO of Nucor's argument about VAT is completely fallacious. VAT on EU manufactured steel would not be chargeable if the steel were exported to the US. If it were sold to a US company with a subsidiary inside the EU, that company would be registered for tax in the EU and could offset the input VAT against its output VAT.
A tariff on the other hand is a tax charge that in effect occurs between tax regimes and is non-recoverable.
That was in fact his point.
If Nucor exports U.S.-produced steel to the EU, it is charged a VAT tax.

When EU companies export steel to the U.S., the EU rebates the VAT tax to them, and absent anti-dumping or countervailing duties, the U.S. imposes no duties.

When EU companies sell steel to EU companies, then the VAT is collected/charged unless the customer exports it, in which case, the VAT is rebated to the exporter.

The end result is that steel exports to the U.S. are not charged duties (unless there are anti-dumping and/or countervailing duties imposed) but U.S. steel exports to other countries are.
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