Jim Cramer: Which Larry Kudlow Will We Have When It Comes Tariffs and Trade?

 | Mar 21, 2018 | 7:16 AM EDT
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Many want to know what it might mean for world trade to have Larry Kudlow be the chief economic adviser to the president. Some will suspect that he couldn't have taken the job if he hadn't agreed to support the president on the notion that our trading partners, particularly the Chinese, haven't played fair and have been stealing business and wrecking our industries for years. Others will say that the globalist instincts of Gary Cohn, his predecessor, will be a total non-starter and, if anything, cost him the job.

But last night's FedEx (FDX) call gave you all you need to recognize where Larry stands on global trade because in all of the years I worked with Larry on Kudlow & Cramer no one seemed closer, when it came to Larry's view, than Fred Smith, the chairman, CEO and founder of FedEx, whom Larry regarded as one of the only economists running a company. Fred's a congenial recipient of the Silver Star for his Marine service in Vietnam, and a total heavyweight in Washington and his headquarters city in Memphis, but he doesn't hesitate to speak up about matters of trade. He can't afford to. For one, the 2016 acquisition of TNT for $4.8 billion locked up a substantial portion of European trade. Second, as Davis Cunningham, FedEx Express President and Chief Operating Officer, said on the call about the belly of the trade beast "the Shanghai hub is a fantastic modern automated facility handling 66 flights and can process 36,000 packages and documents in an hour."

So where does Larry's doppelganger Smith come out on trade? He doesn't mince words: "I am reasonably certain everybody listening to this call has some sort of electronic device in your hand -- a phone or an Ipad of one sort or another," he said. "Go to your Google button and type in DEF meaning definition and put in the word tariff or tariffs. T-A-R-R-I-F. Everybody at this table do it, too."

He's just getting started. Remember, in my time with Larry Smith, he was among the most revered CEOs with an economics background. What you will read in the Google dictionary there or whatever it is "tariff, a tax or duty to be paid on a particular class of imports or exports." Now back to his own comments: "So make no mistake about it, the great benefits that Alan talked about (Alan Graff, executive vice president and CFO) due to the tax-reform bill will to some degree be offset by increases taxes due to tariffs. If we have for national defense needs, in particular aluminum or specialty steel requirements, we would suggest at FedEx that these be bought by the government the same way that we buy up 35 fighters or M1A1 Abrams tanks, respectively."

Wow: couldn't be more different from the president.

Why is he so faithful about the value of unfettered free trade? Mind you this is all in last night's call. "On the overall trade front I would like to give you a couple of numbers here that will probably surprise you. Our trade deficit in total goods and service ten years ago was 4.9% of GDP and it is now 2.9%. It's down by two percentage points of GDP for a couple of major reasons. The first of which is the fantastic technologies that are being employed in our oil and gas sector now called fracking, which has reduced our dependence on imported petroleum that comes from unstable and unfriendly parts of the world owned by national oil companies of governments that are necessarily friendly to the West."

He goes on "the second reason that it's gone down is that our trade surplus and services of which FedEx is a major component has gone up almost $300 billion in a ten-year period. So, as I mentioned in my opening remarks, the best way to deal in my opening remarks up, the correct way to go here is to deal with China but overall it is to lower trade barriers and to lower tariffs around the world, not to engage in less trade." The company will agitate against anything restraining trade.

What was in those opening remarks? How about: "FedEx is concerned about the prospect of increased protectionist tariffs as history has shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services to reduce barriers to trade."

There you have it. The question is which Larry Kudlow are we going to deal with, the one with fealty to Smith, or the president. All I can tell you is that this clash will define the next big move in this market. If Larry prevails, it's up. If he doesn't, plain and simple, it's down.

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