By Justin Spittler, editor, Casey Daily Dispatch
A war has begun.
I’m not talking about a shooting war… or even a cold war. I’m talking about a trade war between the U.S. and its trading partners.
I’ll tell you how we got here in a second.
• What’s a trade war?
Simply put, this is when countries impose protective trade measures that favor their own industries.
It sounds harmless. But protectionist policies make it more expensive for countries to trade with one other.
It’s the exact opposite of free trade.
Now, some people will say the Chinese started this war. Others blame the Mexicans. But make no mistake…
• Donald Trump fired the latest shot…
Last week, Trump proposed a 25% tariff on steel and a 10% tariff on aluminum. A tariff is essentially a tax on imported goods.
Now, countries impose tariffs all the time. Usually, it’s not newsworthy. No one even talks about it.
But this time is different.
You see, Trump’s latest move could have serious ramifications for the economy. It could even trigger a global trade war.
I’ll tell you why in a second. I’ll also show you how to shield your wealth from this war. But let’s start by looking at why this happened…
• Trump wants to put “America First”…
Of course, you probably already knew that. He’s been talking about doing this long before he was even in office.
And he’s now delivering on that promise. Trump tweeted on March 1:
In other words, Trump thinks bad trade deals have screwed American steelmakers. So he’s taken it upon himself to tilt the playing field back in their favor.
But make no mistake. Trump doesn’t just want to help U.S. steel companies. He wants to put all American businesses first.
We know this because Trump says bad trade deals have “sacrificed our prosperity and shipped away our companies, our jobs, and our wealth.” And he wants to put a stop to that.
In fact, he told reporters at the White House on Monday that he’s “not backing down” from his tough stance on trade.
• So, you can bet Trump is going to roll out a lot more measures like this…
Now, I know that doesn’t concern a lot of Americans. And that’s because Trump believes “trade wars are good” and “easy to win.”
But Trump is clearly forgetting something…
There are no winners in war. Only losers.
That’s just as true for trade wars as it is for shooting wars.
Again, that’s because free trade benefits all parties involved. It allows countries to buy goods from other countries for cheaper than they could produce those same goods themselves.
Protectionist trade policies have the opposite effect. They help one country at the expense of others.
America’s trading partners realize this, so they won’t take this lying down. They’re going to retaliate. They’re going to introduce protective measures of their own.
In fact, that’s already happening…
• The European Union (EU) just threatened to introduce a 25% tariff of its own…
The tax would be directed at a variety of U.S. goods, including t-shirts, whiskey, and motorcycles. It’s expected to impact a $3.5 billion market.
This is a big deal for a couple reasons. Number one, the EU is the largest economy on the planet. It’s also America’s largest trading partner.
It’s not the only major economy that’s thinking about firing back, either.
According to Business Insider, China is already looking at putting restrictions on U.S. exports of sorghum and soybeans.
• To be fair, Trump’s hard stance on trade could be a genius negotiating tactic…
He could end up pulling off the “Trade Deal of the Century.”
But if he doesn’t, the U.S. could be in serious trouble. That’s because it can’t afford to close off its borders.
You see, the U.S. is 100% dependent on other countries for 20 commodities. That’s up from eight commodities in 1954.
In other words, we need free trade as much as any country on the planet.
Plus, the last time the U.S. had a full-blown global trade war was in 1930, when the Smoot-Hawley Tariff Act was introduced. The world economy went on to shrink by 25%.
You don’t have to be an economist to know that would be bad for the stock market. So consider taking precautions if you haven’t already. Here are three simple ways to do that today…
Lighten up on your weakest positions. Start by getting rid of your most expensive stocks. Companies with too much debt and falling profits should also get the ax… as well as ones that need a healthy economy to make money.
Hold more cash than usual. Holding more cash than usual will prevent you from suffering huge losses when the market turns down. It will also provide you with “ammunition” to pick up great stocks at cheap valuations.
Own physical gold. As we often remind readers, gold is real money. Unlike paper currencies, it’s survived every financial crisis in history. If stocks fall, investors should pile into gold like they’ve done many times before. To learn more about gold and the best ways to add some to your portfolio today, check out our free report: “The Gold Investor’s Guide.”
Just to be clear, I’m not saying it’s time to panic. But this situation could turn ugly quickly. And you wouldn’t want to be caught off guard if that happens.
After all, many Casey readers have their life savings in stocks. When you have that much on the line, it’s better to be a month early than a second late.
March 6, 2018
P.S. Make sure to keep your eye out for our next Conversations with Casey, which we’ll share in the next few days. In it, Doug Casey explains why a trade war with China could soon erupt into a full-fledged shooting war.
Light mailbag today… We’d love to get your thoughts on the recent tariffs. Do you think we’re on the verge of a trade war? Or do you think this is a non-issue? Let us know—and how you’re preparing your portfolio—here.
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