It's time to speak some truth on trade. Some of you aren't going to like it. But it has to do with what's really happening right here right now and its sobering because it has to do with the numbers.
First, I play with an open hand so here goes. When I started this show I had the former CEO of Nucor (NUE) , Dan Dimicco, on regularly. When Dan retired we put on John Ferriola, the new CEO. I am not about friends, as I say at the beginning of the show, but I am about money. Sometimes I am both though as is the case with Dan.
I have liked the stock of Nucor, the largest steel maker in the U.S. and the best in the world since the mid 1980s when I met Ken Iverson the revolutionary founder of the company. You see Nucor was and is the great innovator in steel and has worked, in a non-union style, to produce the cheapest and the best steel on Earth.
But periodically there's a problem. The numbers have missed; it happens. There have been a couple of quarters where it was Nucor's fault. Everyone has execution problems. But there were multiple quarters where, because the Peoples Republic of China wants to create jobs, they build steel mills and sell the stuff well below cost. Again, there's much that was inefficient with American steel companies, but not at Nucor and it's just a fact of life, one known to everyone who is even remotely close to the industry, that China cared more about putting people to work than they did about the cost of the steel and that wrecked our ability to compete. We kept our markets open because we are free traders even though the Chinese pollute like crazy and to call them friends given how much intellectual property they steal from us is a ludicrous. Hey, South Korea's not much better. They barely buy cars from us but flood our country with cheap cars and we accept it because we want a strong South Korean bullwark against North Korean aggression.
These are two different kinds of deals, both bad for the American worker. Now you may not care about the worker. The economists I heard all day didn't' seem to. But maybe you have never seen what happens when the Chinese decide to subsidize and industry like they did Pop's, with gift wrap, where they made paper well under the cost of its production and closed all the mills my father worked for. Dark days in the Cramer household. He ended up working for the Chinese cause that was all that was left. Thank heavens they respect the elderly.
But my point is a simple one. Steel mills put a lot of people to work. The Chinese put a lot of people to work making steel, way too much steel, and that brought down the price of all steel to below where most mills in our country, with the exception of Nucor and a handful of others, could survive. My charitable trust owns Nucor and periodically I have had my fits with them after missing a quarter, but they have patiently explained to me why it happened and invariably it's because of Chinese dumping steel at well below what it cost to make not only here but there.
When Klaus Kleinfeld was CEO of Alcoa (AA) we used to have the exact same conversations. They'd miss a quarter, I would go up for my regular quarterly download and he would painstakingly walk me through how the Chinese dumped aluminum that was well below the cost of production because, again, it was an easy way to put people to work. The pollution of the Chinese mills finally got to the government after a million people started dying of respiratory illness each year in the country. But Klaus would tell me about the state-run mills they wouldn't close and how their aluminum ended up here taking our jobs with it.
Mind you I didn't come at this like an economist -- even though if you ask Alexa who I am, she will tell you I am one. Noted even.
I came at it as an angry investor or a furious reporter asking these execs how in heck they could bag my viewers and readers. They spent literally hour upon hour walking me through it and they convinced me that the Chinese were operating the same way they did toward Pop's gift wrap industry.
However, there's a big difference. You can't fight wars with giftwrap. There's no national security issue with Christmas paper.
But with steel? Nucor's Ferriola put it pretty simply when he came on Mad Money and talked about defense and our steal.
You know what? I think that's not all that farfetched. Ask yourself, do you?
Okay but aren't all tariffs evil like the ones that Smoot and Hawley jammed in to exacerbate the Great Depression. NO! Lots of times the competitors change their tune. Unlike a lot of the commentary you hear, these countries, including China, can be paper tigers. In the end they want our markets badly, so badly they will wipe out any industry to keep them. I am sure President Trump's initiative, far from hurting jobs, will most likely cause more to come here because these so-called trading partners are scared to death now and will build factories in this country to take the heat off.
How about the cost to the American consumer? Okay, it's maybe a little more than $100 a car, less than the Nvidia (NVDA) or NXPI (NXPI) chips in the best of the best cars and one-tenth the cost of the in-car entertainment system.
Yes, it could add some pennies here, and some pennies there. I liked the can of coke story that Commerce Secretary Wilbur Ross talked about today.
I heard a lot of grousing from captains of industry today about how much these tariffs would cost them and I wanted to throw up. You mean to tell me after you just got the best corporate tax breaks in the history of the republic you are so greedy as to not take the pain of these small increases in some raw costs? Are you that craven? That greedy?
Now some industries are hurt more than that others. There are two million aluminum fasteners in a jetliner. That's going to cost Boeing some money.. Unless it raises prices. It can; demand is that strong. Will China retaliate against us by boycotting Boeing? It could, but again, the demand is so off the charts that they would be cutting their noses off to spite their faces. There's no excess planes being built for heaven's sake.
Now it is true that there are some markets at stake. For the longest time we have had a policy in this country of sacrificing the jobs of American workers so we could sell as many diapers and turbines into China as possible. It was a bargain with devil; we got some companies with better than expected earnings and others companies that had to close. I get that; I want Procter (PG) and Kimberly (KMB) and even the once sainted GE (GE) to make their numbers. Heck, I am a numbers guy. But I never had any illusions. It was a trade-off. Hate him or like him, when the country elected Donald J Trump, the voters decided it was better to ding Caterpillar's (CAT) earnings than continue to have layoffs in steel. The steel workforce has been cut in half since 1990 from about 700,000 to 350,000. And the people didn't want our Navy to use Chinese steel more than they wanted to use US Steel. Is that stupid? Is that wrong? Believe me when I say that Adam Smith would think it real stupid to use the steel of a potential enemy to make fighting ships that might, one day, be used to attempt to deter them.
One last thing. Could Trump 's decision to fight back and side with the worker versus the American tooth paste makers et al cause the stock market to go down? Sure. So could a lot of other things. Will we still make money? I got a newsflash: there's always a bull market somewhere and I promise to find it just for you.
