We are at a critical crossroads in trade and I think that one course, the protectionist course, should be put on your agenda before you decide to buy stocks with foreign exposure.
Sometime in the next few weeks, the Commerce Department will decide whether to put tariffs on steel and aluminum based on national security. If it does, I believe Trump, who has 90 days to take action, may do so immediately.
That could trigger total hysteria among the faux bulls who will scream "trade war" the moment you hear it, and urge you to sell the stocks of companies that do big business overseas.
The Commerce Department is very specifically looking into whether China could be destroying the domestic steel industry by its endless dumping and if that could cause national security issues if our steel mills are wiped out by them.
I think it's a pretty good chance that Commerce, run by Wilbur Ross, a tough no nonsense guy, will recommend that Section 232 of the Trade Expansion Act should be used to ban those imports once and for all. Why not? We make tanks in this country. What are we going to do? Make them with Chinese steel?
We still use steel in many of our weapons. Wouldn't it be brilliant for the Chinese to crush our steel industry and then make faulty steel -- they have been known to do so -- and our soldiers are killed because of it? You think that's unrealistic? You are dreaming. The Chinese government has proven to be unable to control the quality of steel or the quantity of aluminum they dump here.
It's been a ridiculous one-sided war, a war where we keep getting hit in the face endlessly and we say fine, because we want to sell a lot of products into China and many business people are willing to sacrifice the steel industry and all of its now-reduced workforce to do so.
I have always found it odd that we haven't thought of their dumping as a national security issue. When we were dealing with the Russians as enemies in the cold war, we would have been reluctant to have them wipe out our steel industry. Why are the Chinese allowed to?
Plus, both sides of the aisle want to protect this industry -- the Democrats, from the point of view of the workers and the Republicans from the point of view of capital. One look at the angry letter from Massachusetts senators Warren and Markey sent in October 2017 to Secretary Ross urging him to finish his investigation because of the spiking of imports shows you how President Trump could triangulate this issue and even unite us on infrastructure if he chooses to do so.
Remember, Ross, who founded the International Steel Group after amalgamating a bunch of bankrupt steel companies, has already said he sees a "genuine" national security concern because of Chinese dumping. He knows from personal experience what he's talking about. Plus, capital and labor coalesce on this issue. Or, Trump can use China to help de-nuke North Korea, or he can choose finally to fight back.
If you don't think all of this can come true, then what did the Committee on Foreign Investment's blocking this week of Jack Ma's Ant Financial's $1.2 billion deal to buy MoneyGram (MGI) mean? Ma's supposed to be friends with Trump. Was this really a dangerous challenge to the U.S.? I don't think so. It's more of a shot across the bow.
Now, remember I said that this potential Section 232 violation would cause faux trauma that will shake people out of the big industrials like Caterpillar (CAT) or United Technologies (UTX) or even General Motors (GM) , IBM (IBM) and, of course, Action Alerts PLUS charity portfolio name General Electric (GE) .
It is more than likely that the Chinese cave and work with Trump, because I think they are scared of the guy. Wouldn't you be? We're a great market for Chinese goods. Why sacrifice that for the right to have state-owned mills gin out steel and pollute the already despoiled air?
Why do I think it could happen? Simple: Nucor NUE is the biggest advocate of Section 232, and have you seen that stock? It's had an insane rally. What a tell for what's ahead, given that the company keeps missing the estimates quarter after quarter, in part because of Chinese dumping.
What am I trying to do here? Steel you for the oncoming barrage of stories about how we are in a trade war with China. Newsflash: we've been in one for ages. All we are doing is, at last, fighting back.
So be ready; it will happen right smack in the middle of earnings season, and it is one thing that most surely isn't baked into stocks.