While investors might not feel it right now, tariffs do have some upsides. The most direct one—revenue for the US Treasury. US Treasury income is surging because of the recent tariff hikes on Chinese goods. The rolling 12-month sum of customs duties collected by the Treasury (through the end of June) was $63 bn, almost double the sum of the same period last year. If Trump enacts another round of planned hikes on September 1st, the US will likely collect $100 bn in tariffs this year.
FINSUM: This is a good number, especially at a time of major government over-spending. However, it must be remembered that the large majority of this bounty will be eaten up by aid paid to US farmers as part of tariff relief efforts.
The first round of the second Democratic debate occurred last night, and it was full of fireworks. Candidates ramped up their attacks on one another, with most of the aggressiveness directed at Bernie Sanders and Elizabeth Warren for their Medicare for All bills that would create an entirely government-run healthcare system. Other candidates criticized the plan as “fairy tale economics”.
FINSUM: We again think that the debate last night showed why Republicans are most likely to win this election—many in the party recognize the need to play more toward the middle to win the race.
It has been a very bumpy run for US-China trade talks this year, but after a significant hiatus, China will again return to the negotiating table with the US in September. The most recent round of talks, in Shanghai, just concluded without an agreement, but there were some signs of life, as China buying US farm goods was discussed. The negotiators only stayed in Shanghai about 24 hours.
FINSUM: This seems to us like quite an intractable issue. We do not expect a forthcoming agreement any time soon.
The first round of the Democratic debates a few weeks ago was a little disappointing from an entertainment perspective. All the candidates seemed loathe to argue with one another, so the overall debate didn’t have the electric atmosphere that many of the candidates seem to have outside the debate venue. However, tonight and tomorrow should be different, as Joe Biden is likely to be under heavy attack as the frontrunner. The field of candidates is thinning and the stakes are much higher this time, which means there are likely to be more aggressive tactics. Biden himself has said he won’t be so friendly this time around.
FINSUM: If we had to make a call right now, we would say that Trump is likely to win re-reelection. Our reasoning is simple—the candidate most likely to win the Democratic bid is probably the one most tolerable to Republicans (i.e. Biden), which means the average American voter is more skewed to the right than to the left.
The Democrats are finally getting their time with Robert Mueller this week. Mueller is set to testify for a full five hours before the House Judiciary Committee and House Intelligence Committee on Wednesday. Democrats are seen as likely to push him to give further details on his investigation, especially into obstruction of justice claims, while Republicans are expected to probe him on bias within the FBI.
FINSUM: Everyone seems to agree—it is hard to imagine anything happening at these hearings that would change anyone’s mind.
It may seem very far out right now, but the 2020 election is looking like it could be a very bad outcome for markets. Democrats are still leading in the polls, which is bad news because pretty much every candidate (perhaps with the exception of Biden) looks like they would be quite bearish for markets. Between higher taxes, more regulations, and government run healthcare, the outlook for markets from most of the leading candidates appears bleak.
FINSUM: When you take even a casual glance at how this election is shaping up, things look rough. You have the most leftist Democratic candidates in memory, and they are leading the polls. We think the polls are off and Trump still has better odds, but there is undoubtedly a very large risk.