We are huge sports fans at home. We really love football and basketball. But many people are surprised by our third favorite sporting spectacle, soccer, also known as the beautiful game.
The pinnacle of soccer (futbol) is the World Cup. And the first time I became aware of the term “own goal” was during the 1994 World Cup. That year (the last time the tournament was held in the US) the Americans matched up in the second round of the group stage with a much higher ranked Colombia, who quickly turned around and lost the match. During play, Andres Escobar, who was one of Colombia’s best players, deflected a shot on goal into the Colombia net. This is the text-book definition of an “own goal.” At the end of the day, Escobar’s fail was not intentional. Still, he paid the ultimate price for it.
A few days after the return of the Colombian team, Escobar was targeted and executed in a violent shooting in the streets of Medellin. Officials refused to discuss the motive.
The current US tariff plan that has roiled bond and equity markets across the world over the last week or so seems to be an own goal of historic proportion and, depending on how things progress, could have a fatal outcome for the recent upward trend of the US economy.
The first negative aspect of the tariff roll out has been the uncoordinated, on again, off again implementation. It has created an impression of poor planning and little forethought or analysis. This is further exacerbated by the overt declaration that the calculations used in setting the reciprocal tariffs took into account current rates, barriers and other taxes but were actually just a rudimentary calculation of the actual trade imbalance with a specific country.
Trade imbalances exist for many reasons including tariffs, relative size of the economies engaged in trade, currency differences and other factors. It is not practical or even desirable for trade to balance out between most countries. This brings us to the second negative aspect of the proposed tariff regime. The motivating factor seems to be to erase trade deficits with all countries. This ignores the fact that as the global superpower and provider of the reserve currency, used for the majority of trade in the world, the US is the consumer of last resort. And the one thing we export that nobody else can is the US Dollar. We could easily erase all these trade deficits by simply becoming a much smaller economy. That wouldn’t seem to be a smart goal.
It is understood that the US budget deficit and lack of upward mobility for many Americans is a legitimate justification to make an effort to bring jobs back to US shores. This is not the way to do it. Manufacturing has already been returning to the US without levying crushing tariffs. Based on US Census data, spending on manufacturing has increased over the last two years, by more than double, and now over 60% of that spending is in the computer/electronic/electrical sector. These are sectors where we have significant comparative advantages.
The US spent more than 80 years creating the current system of international trade. It benefits the world, as evidenced by the improvements in poverty levels in many different countries, including China and India. But it has also benefited the United States greatly, evidenced by the size and strength of its economy and its high standard of living.
There are serious issues in our economy to address to be sure. Dealing with the budget deficit, cutting red tape and eliminating true waste, fraud and abuse are important steps. We need to focus on education and being sure the next generation is prepared for the jobs that will be created as AI revolutionizes the world and the workforce. But blowing up the US led system of international trade is an own goal that will not lead to outcomes that will address these issues.
We expect that as trading partners work with the administration to adjust trade and tariff policies and in many cases reach agreements, at least some of the uncertainty being experienced currently will be clarified. This will allow businesses to adjust their plans in turn and navigate through. Whether this happens quickly enough to avoid a major downturn in economic activity remains to be seen.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.