12-3-24: Don’t Fear Tariff Wars – Fear the Escalation of Real Wars

by Louis Navellier

December 3, 2024

President-elect Donald Trump said last week that he intends to levy 25% tariffs on neighboring Canada and Mexico, while boosting tariffs by 10% on China in retaliation for their contribution to drug trafficking via illegal immigration into America. On Trump Social, the President-elect said that he would impose tariffs on his first day in office “on ALL products coming into the United States, and its ridiculous open borders.” Trump added that these tariffs on Canada and Mexico would remain in place “until such time as Drugs, in particular Fentanyl, and Illegal Aliens stop this Invasion of our Country.” Regarding China, Trump said that the 10% tariffs would be on “all” products and would be charged on top of existing levies on Chinese goods. I should add that the U.S. dollar rallied in the wake of Trump’s tariff announcement.

It is obvious that President-elect Trump likes to fight economic wars rather than real (bloody) wars, and he does so by making our trading partners feel very uncomfortable. He does this so that the U.S. can negotiate from strength. In theory, if Canada and Mexico seal their respective borders to stop the flow of illegal drugs and undocumented aliens, then Donald Trump would not impose these 25% tariffs.

As a result, I suspect Canada and Mexico will fully cooperate with Trump, since otherwise, the economic cost of 25% tariffs would destroy their respective economies. In fact, Canadian Prime Minister Justin Trudeau already called Trump to discuss border security and trade, and Mexico’s President Claudia Sheinbaum also pledged cooperation. China will be more problematic and likely less cooperative.

Specifically, China’s proposed BYD manufacturing plant in Mexico will put President Sheinbaum in a precarious position, since President-elect Trump has threatened to impose a punitive 200% tariff on any Chinese car made in Mexico. Since BYD’s sales are booming within Mexico, Brazil and other countries in Latin America, building BYD vehicles in Mexico makes some logistical and economic sense. However, the threatened 200% tariffs would likely prohibit any BYD exports into the U.S. It will be very interesting to see how President Sheinbaum responds, since she does not want to be viewed as Trump’s lapdog.

On the immigration front, however, Mexican President Sheinbaum has declared that the migrant caravans have already been ended, in a clear attempt to look like a strong leader – and to appease Donald Trump.

China’s increasing dominance in electric and hybrid vehicles, led by BYD, has caused the market share of Japanese and German vehicle sales to plummet. For example, Nissan is curtailing its vehicle production and continuing to close its manufacturing plants. In fact, in a Financial Times interview, two anonymous Nissan executives said that the company has “12 to 14 months to survive.” BYD has asked its Chinese suppliers to cut their prices by 10% in 2025, so it appears that BYD is not satisfied being a market leader and wants to continue to capture market share, despite having the cheapest EVs and popular hybrids.

Interestingly, California Governor Gavin Newsom is proposing that his state would offer rebates to buyers of electric vehicles (EVs) if the $7,500 federal tax credit is repealed. The only problem with Newsom’s EV rebate proposal is that it excludes Tesla, which is the only car manufacturer in California. Obviously, Newsom and Tesla CEO Elon Musk have been feuding for years, but by excluding the only company actually making EVs in California in favor on EVs made in South Korea and other countries has caused Elon Musk to post on X that Newsom’s EV rebate proposal was “insane.”

Europe’s “Rudderless Malaise” Deepens

The Conference Board announced that America’s consumer confidence index rose to 111.7 in November, up from 109.6 in October, reflecting holiday joy and hope at the start of the holiday shopping season. In contrast, Europe’s mood is the opposite. Consumer confidence in Germany on Wednesday plunged by 4.9 points to -23.3, reflecting their rising anxiety about layoffs. Germany’s largest steelmaker, Thyssenkrupp, announced last week that it would lay off 40% of its steel workforce, or approximately 5,000 jobs. Thyssenkrupp is also shutting down one of its processing sites and slashing production by about 25%.

Due to mounting layoffs in Germany and the fact that France is slipping into a recession, due to horrible PMI data, the European Central Bank (ECB) will likely cut interest rates more in the upcoming months, in order to try to stimulate the economy and stop rising unemployment. Due to the anticipation of rate cuts, the euro is now at its lowest level in two years and is expected to fall below $1 in upcoming months.

As global interest rates decline, it should also help U.S. Treasury rates to decline in 2025, so that is a positive development. The Federal Open Market Committee (FOMC) minutes were released on Tuesday and revealed that the Fed will likely continue cutting key interest rates until a neutral rate is reached.

The FOMC remains worried about the job market, so if the Department of Government Efficiency (DOGE) under Trump 2.0 follows through with severance packages for hundreds of thousands of federal workers, the Fed may have to cut key interest rates further, as long as their job market concerns persist.

In a Financial Times interview, ECB President Christine Lagarde acknowledged that President-elect Trump likes to threaten tariffs as negotiation tools. Lagarde said that the European Commission is preparing to engage Trump and offer to import more U.S. goods and resources, like LNG. Furthermore, Lagarde wanted to be positive about boosting trade with the U.S. and not engage in a “tit for tat” tariff war. Overall, it appears that Europe will diffuse much of the tariff talk by boosting U.S. imports.

While world leaders begin to cooperate with Donald Trump, some domestic tech leaders are finally beginning to do the same. Meta’s Mark Zuckerberg visited Mar-a-Lago on Wednesday and had dinner with Trump. Although he reportedly spent $400 million in “Zuckerbucks” to defeat Trump in 2020, he has pledged to avoid any involvement in politics in 2024 (after being subpoenaed by the House of Representatives for his role the 2020 election) and has been praising Donald Trump as a “badass” since surviving his first assignation attempt. I suspect that Zuckerberg had to wait to visit Mar-a-Lago until after Elon Musk had left. Otherwise, Trump might have re-ignited a cage fight and brokered it (for his WFC friend Dana White), since Musk and Zuckerberg had threatened to stage a cage fight years ago.

Second Thoughts in Azerbaijan, Europe and America

On the Paris Climate Accord and Green New Deal

The COP29 climate summit in Azerbaijan ended on a sour note. The last three COP events – in Egypt, the UAE and now Azerbaijan – largely focused on how much money poor countries can extort from rich countries. Rich oil-producing nations, led by Saudi Arabia, are increasingly hostile to climate goals, so I would not be surprised if the countries that committed to the Paris Climate Accord increasingly leave that coalition. Donald Trump pulled the U.S. out of the Paris Climate Accord during his first term, while Joe Biden rejoined the Paris Accord during his term, but under Trump, the U.S. is expected to pull out again.

The farm protests all over Europe were largely caused by a series of oppressive rules imposed by the Paris Climate Accord, such as returning 30% of land to its “natural state,” culling herds of farm animals to reduce methane emissions and switching to organic fertilizers from chemical fertilizers. As a result, the largest party in the Netherlands is now a Farm Party, which did not exist a few years ago. The rightward shift in Europe is largely a rejection of the Paris Climate Accord, which caused higher food and energy prices.

As a result of these revolts, the two largest European countries are essentially headless, since Germany will have an election in February, and France is being led by President Macron, whose party now holds a minority in Parliament. Marine Le Pen’s National Rally party has the most seats in Parliament, and they continue to undermine Macron’s authority, especially over his spending. In fact, Marine Le Pen’s National Rally party is making budget demands that, if not accepted, could topple Marcon’s fragile ruling coalition.

You might be wondering how Europe can continue to fund the war in Ukraine when France and Germany are in a recession and in such political disarray. The answer is they cannot. They have made loans, not gifts, to Ukraine, and the U.S. and other embassies in Kiev had to be evacuated due to the threat of Russian missile strikes. Despite this, the Biden Administration authorized Ukraine to utilize long-term missiles against Russia as well as the use of land mines – a dangerous escalation that is expected to be ended by Trump in 2025. Wars are expensive and not cost effective for Europe, where support is waning.

As a result, I expect that we’ll see big changes in the New Year, including: (1) the euro falling below US$1, (2) Christian Democrat leader Fredrich Merz to be named the new German chancellor, and (3) the incoming Trump Administration immediately negotiating a cease fire and framework for Russia and Ukraine to co-exist after approximately a million people have been killed or maimed in a senseless war.

Russia will likely agree to a ceasefire, even though its aggressive missile attacks have damaged utility infrastructure and resulted in massive blackouts in Ukraine this week, because the Russian ruble has plunged against its biggest trading partners, China and India, and that is causing significant inflation inside Russia. The Russian ruble is now at a 32-month low and the signs of stress on Russia’s internal Gazprombank are obvious. Besides, Vladimir Putin has said that he is ready to negotiate a ceasefire with President-elect Trump. In the event of such a ceasefire, I expect to see a big relief rally in the New Year!

Navellier & Associates, a few accounts own Meta Platforms (META), and Tesla (TSLA), per client request in managed accounts. Louis Navellier does not own Meta Platforms (META), or Tesla (TSLA), personally.