We heard a great quote this week in the financial press: “If you trade on news headlines, you will end up delivering newspapers.” We could not put it better, especially this week as the financial world has been buzzing with news about tariffs, reprisals, the resignation of Gary Cohn and more. What we saw is that with each piece of news that broke, whipsaw reactions occurred in the markets.

After the announcement by President Trump last week of the intent to levy 25 percent tariffs on steel and 10 percent tariffs on aluminum, the market jolted a bit. But the point is that we need to dig deeper and get more details of how, where and to whom these tariffs will truly be applied and affected. This administration has been unconventional but when it comes to the topic of 'trade issues,' it is essential to dissect and understand the facts deeper, because it is such a complicated topic where the world is truly so intertwined today.

The steel and aluminum tariffs are just a warm up, by the way, for what might be an even bigger fight. In August of last year, the administration directed U.S. Trade Representative Robert Lighthizer to open a formal investigation into China's trade practices. The background to this is that businesses complain that China's approach to intellectual property rights are tantamount to IP theft.Some estimates claim that the U.S. loses $600 billion annually to IP theft – a claim that would represent the largest transfer of wealth in history if it is accurate

Although this investigation is scheduled to finish by this August, reports are circulating that most of the analysis is done and the results could be released sooner. The implications of this report, depending on what it uncovers, could make the effect of the steel and aluminum tariffs look small in comparison.

Our View: No one should be surprised that Donald Trump is talking tough on trade: It was a key tenet of his campaign. Markets up until this time have been wondering if “Protectionist Trump” was indeed real. That question has been answered as it looks like this administration is committed to a protectionist stance. The key focus from here however, is whether the U.S. is truly becoming 'protectionist' just to save jobs, or whether we are going back to 'fair trade,' and that is what we would like to find out going ahead.

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