Let’s say we own a property that is worth $500,000. We put it on the market for $1,000,000 against the advice of friends, family and experts. We are adamant that we are right, even though we are dead wrong.
What’s more, we say that we are prepared to broker a lower price because we are such good negotiators. Guess what? We have no viewings. Nobody is in the least bit interested in buying our property.
We wait for months and still nothing happens. The longer we maintain our listing at $1,000,000 the bigger a laughingstock we become. Eventually, we cut the price to $750,000. But still there are no takers. In fact, potential buyers see a flaw in our strategy, if not a glaring flaw in our personality.
They reason that if a seller chickens out and is prepared to cut the asking price once, then more cuts could be on the way. All they have to do is wait. It is hardly surprising that there are no viewings. Cutting the asking price unilaterally is not the definition of a negotiation. It is capitulation.
The Trump administration has capitulated. It has now been forced to impose tariffs and even delay the implementation of the import taxes until 1 August. Laughably, it has said that the tariffs are firm but not 100% firm. What does that even mean?
The US government has now backed itself into a corner. The roughly 25% tariff rate imposed on 14 countries is high, but it is not excessive. Those tariffs are unlikely to see swathes of overseas manufacturers rush to the US to build factories and start producing.
Instead, it is quite possible that some exporters could trim prices to the US at the margins. But it will ultimately be American importers that will pay the lion’s share of the tariffs.
That is a worrying development for the US. For now, importers have been able to front-load their purchases to beat the tariffs. Eventually, the inventory of cheap imports will be depleted. Then the price of goods could rise.
That is inflationary. It could make it harder for the Fed to cut rates, which could mean that the costs of borrowing could stay higher for longer. Inflation could be a worry for the rest of us, too. When supply chains are disrupted, it can cause problems elsewhere.
We need to be mindful of Lorenzo’s butterfly effect – we are all connected to the same system. What happens in America doesn’t stay in America. It can have a profound effect on the rest of the world.
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Disclosure: David Kuo does not own any of the shares mentioned.
