Trade Wars: In Chaos There Is Opportunity

As Americans worry about the potential costs that they are going to have to absorb while the “reciprocal” tariffs or their precursor lesser tariffs work their impacts upon their wallets, they are hoping or believing that the punitive nature of the tariffs will be resolved by successful negotiations. For some this is part of the ‘short period of pain’ that will occur until the huge benefits are realized. For others this is just the new level of pain that they will grow accustom to in their lives as the new “normal” settles the addition cost burdens upon them.

It's not a given what the eventual and actual outcome will be. There are many different courses that can result even with any single nation; and that there are tariff negotiations and issues to be resolved with every nation there is a geometrically larger number of results possible. When taken together the aggregate of all these negotiations will fall somewhere from disaster to prosperity. People “hope” that our leaders will work out the best solutions that they can. Hope is always a default for people when they have little to no ability to do anything to change the course or the outcome. And if you don’t recall, “hope” is a terrible strategy.

What people don’t think about is that there are solutions to the tariff issues with each nation that are not just settling on some agreement on their trade & tariff policies with the US. In fact, any moderately competent systems analyst would recommend seizing the moment to take advantage of the chaos; because in chaos there is opportunity. [“In chaos there is opportunity” is one of my favorite lines / concepts.]

Imagine you are the leader of a nation that is reacting to the tariffs that the US has imposed. Is this a problem? Yes, anything that impacts your economy is a problem. But all problems are also opportunities, at least that is something a good analyst would tell you. What are some aspects of the tariffs problem that should be considered by any nation? These are the “solution options” that ought to be being assessed and taken or discarded as in the tariffed nation’s interest?

Tariffed Nation’s Solution Options:

• Seek alternate markets for your goods and services. This has been done in past druing tariff war scenarios; and this path has consequences which can be more beneficial to the tariffed nation than for the nation imposing the tariffs.
  

• Seek alternate supplying markets for goods that the tariffing nation was supplying and import the goods/service from another source. The removal of the tariffs may not cause these goods/services to go back to the original provider. The competition from other producers could reduce the demand from the tariffing nation or put much higher competitive pricing pressure on that nation’s producers. Market share may be permanently lost. The market itself could be lost.
  

• ·Substitution of tariffed items. The ‘normal’ produce/service that a nation uses may be vulnerable to being displaced and by a different nation provider altogether. This is just the normal reaction to a competitive marketplace and evolution of the markets.
  

• Boycotting of products/services from the tariffing nation may simply reduce demand and thus profits for producers. Eliminating the tariffs does not require a restoration of the pre-tariffed trade environment. If substitution occurs as part of the boycotting then the damage may become even greater over time.
  

• Stimulating new trade agreements among other nations that focus more competitive pressures on the tariffing nation and stimulus for trade expansion among participants in the new or expanded trade agreements.
  

• Focused investment and funding policies in other nations to create more domestic production and servicing capacity to reduce their vulnerability to and reliance upon another nation.
  

• Some nations may be in a good position to engage in collaborative productions that seize the opportunity that the disruption of tariffs exposes. This just changes the overall trade environment that excludes the tariffing nation’s interests as they are the “causal” agent promoting the beneficial “effect” now available to other nations.
  

• Some nations may even see pricing, taxing, and exchanging opportunities that alter the trade environment that is used among trading nations. This is less likely to occur as this option requires some smart and innovative approaches to create an economic evolutionary change to add to how they do trade and business.

I am sure that there are other consequences that can come from a tariff war. However, it is clear that some or all of those just mentioned are going to occur already.

While I am sure that America will ‘claim’ it has ‘won’ the tariff wars, how much better off or worse off the US will be won’t be settled for some time. In an economy, the consequences of actions do have a law of physics type of “cause and effect” phenomena, but the effect(s) can have significant lag times and can even follow a chaotic path. This time lag also becomes complicated with all the other events that introduce their own “causal” forces into the economy. A global pandemic, or global drought or torrential rains, or massive earthquakes around the globe might have a great enough impact to swamp the impacts for self-inflected, insipid tariff policies.

This is one of the differences between having a ‘belief’ in how to address a problem; and actually having an informed and fact-based approach to resolving that problem.