The penguins on the Heard and McDonald Islands are probably furious at the 10% tariffs that have been imposed on their exports to the US. The two tiny uninhabited Australian islands near Antarctica have been unwittingly caught up in the clumsy tariffs unleashed by the current American administration.
Which bright spark at the United States International Trade Commission thought that it was a good idea to target the home of the aquatic, flightless birds? As far as I know, the two islands neither has a trade surplus nor a trade deficit with the US. The penguins consume just about everything that they can fit into their beaks.
They don’t need to import American cars because everywhere is within walking or swimming distance. They don’t have an urge to buy US refrigerators or microwaves because they like their fish to be very fresh and preferably very raw. So, there is no way that they can possibly negotiate out of this ludicrous conundrum. Perhaps they could import American-made fishing rods, if they only knew how to use them.
“Gone fishing” is the tactic adopted by some economies. They know better than most that the import tariffs imposed by the US administration will eventually be paid by American households. That is if American consumers will even have the necessary disposable income to buy anything.
The tariff bombshell instead of Making America Great Again could make Americans poorer through higher inflation. They already are poorer as trillions of dollars have been wiped off global stock markets since inauguration day.
The mess doesn’t end there. The current administration has floated the idea that the tariffs will finance lower taxes for the masses. But it has also said that the tariffs are a negotiating tool.
In other words, America could reduce the tariffs if other countries are prepared to buy American-made products. So, which is it? Are tariffs a revenue generator to pay for the promised tax cuts or are they a ploy to get other parties to the negotiating table? They can’t have it both ways.
The tariff war and the spectre of rising inflation, elevated interest rates, and slower economic growth has unsurprisingly unsettled global markets. But long-term investors need to remain calm.
Legendary investor Peter Lynch once said that we should buy shares in a business that any idiot can run because sooner or later an idiot probably will. I would extend that to include countries, too. Peter Lynch’s point is a simple one. A great business should be self-sustaining, and it should perform well regardless of operating environments.
I am sure good companies all over the world have already been looking at different ways to reconfigure their supply chains, look for new markets, and even look at new products. They aren’t waiting around for governments to negotiate with America.
Nor should we. The US leadership might have lost its mind. But we shouldn’t lose our focus. Try to look through the mess that has been created by the American government and take advantage of lower share prices. But only if they are great businesses.
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Disclosure: David Kuo does not own any of the shares mentioned.
