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The Tectonic Shift In Global Trade

Summary

  • Several economic studies have shown that the recent trade war has done more harm than good to American manufacturing, actually reducing employment in that sector.
  • It has also depressed US investment, which in turn weighs on economic growth.
  • American businesses and consumers paid around $46 billion from 2018 to 2019 due to tariffs on Chinese imports — virtually none was paid by China.
  • Trade wars appear set to continue for years to come, whoever wins the White House for the next presidential term.
  • This will undoubtedly have a dampening effect on economic growth going forward.
  • Looking for a helping hand in the market? Members of High Yield Landlord get exclusive ideas and guidance to navigate any climate. Get started today »

Thesis

The global economy has undergone a fundamental shift in recent years. The rules-based, free and open international trade regime that dominated the latter half of the 20th century and first decade and a half of the 21st century has cracked and broken, giving way to a new era of trade populism.

Of course, this fundamental shift is not complete. It is ongoing. And it is primarily a political shift, not one initiated by market forces. Hence we find that, despite a declining US trade deficit in the back half of 2019, that deficit has powerfully reasserted itself in the wake of the coronavirus pandemic.

In August, 2020, the US trade deficit reached a 14-year high, coming up just shy of the all time high reached in 2006. This even as the trade deficit with China, specifically, fell by 6.7%.

Interestingly, the COVID-19 recession of 2020 differs from previous recessions in that it dramatically increased the trade deficit, whereas previous recessions decreased the trade deficit. Total US trade is down 15.1% this year, which means that as the US pulls out of its shutdown-related economic slump, consumers and businesses are purchasing more imported goods from our trading partners than they are from us.

Unfortunately, as I will discuss below, this tectonic shift in trade policy is unlikely to change anytime soon, even if the residents of the White House change next year. That will be the topic of the first section below. After that, I will explain why this paragraph begins with "unfortunately." Recent economic research put out by the Federal Reserve has shown that the trade war brought on by this policy shift has (1) done more harm than good to the American manufacturing sector and (2) depressed US investment growth.

I'll close with some thoughts

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This article was written by

Austin Rogers profile picture
17.87K Followers

Austin Rogers is a REIT specialist with a professional background in commercial real estate. He writes about high-quality dividend growth stocks with the goal of generating the safest growing passive income stream possible. Since his ideal holding period is "lifelong," his focus is on portfolio income growth rather than total returns.

Austin is a contributing author for the investing group High Yield Landlord, one of the largest real estate investment communities on Seeking Alpha, with thousands of members. It offers exclusive research on the global REIT sector, multiple real money portfolios, an active chat room, and direct access to the analysts. Learn more.

Analyst’s Disclosure: I am/we are long MLPX, NETL, BIP, BIPC, BEP, BEPC, CWEN, CWEN.A. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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