Economy

The 5% Tariff That Could Cost the U.S. Economy Billions

By The Rich Investor  |  June 8, 2019

Highlights:

  • President Trump still expects to implement 5% tariffs on Mexican imports to the U.S. on Monday despite made progress on immigration
  • Hiring slowed in May with only 75,000 jobs added in the U.S.
  • Value stocks are trading at the largest discount ever

Come Monday, June 10, President Trump claimed that a 5% tariff on all imported goods from Mexico to the U.S. would be implemented as a means to push the Mexican government to get a hold on immigration. And the tariff, despite progress and willingness in the negotiations, is still on track to happen. There has been no word on plans to move away from the 5% taxation.

Not all Senate Republicans are in agreement with Trump’s plan. Though they agree with the focus on correcting the immigration issue, some see the potential repercussions, especially in the long term if there is no resolution, hazardous to the economy.

Come July 1, that 5% will increase to 10%, and will hit 25% by October. Over time, the tariff could affect billions of dollars worth of imports, most Americans use daily. The auto industry would catch the brunt of the tariffs — impacting roughly $82 billion between cars, trucks and buses, and crude oil.

Amid the U.S-China trade war and the Mexico tariff, the U.S. economy was expected to slow. For May, the number of new hires fell short. Only 75,000 new jobs were added on the expectation of 180,000. Though this news, as previously mentioned, was somewhat expected, it shows that companies are taking more cautions moving forward.

Signals are somewhat mixed for the economy, however, in recent months. Consumer spending has remained relatively steady and the the service sector, which accounts for 88% of the gross domestic product (GDP), has shown continual growth. Meanwhile, manufacturing output is still down along with housing.

With a recent jump in the stock market, and talks of potential Fed rate cuts, it’s anyone’s guess what could happen next…

And right now, it’s a terrible time to be a value investor. With value stocks trading at the largest discount ever, some believe the strategy might as well be laid to rest. But Charles Sizemore doesn’t necessarily see these times as the death of value investing.

Here’s what Charles has to say about that:

It really is the 1990s all over again. Back then, it was ridiculous tech startups with no path to profitability — remember the Pets.com sock puppet?  It was trading at “price to eyeballs” valuations.

 Today, it’s money-losing “unicorn” apps with not path to profitability… not to mention cryptocurrencies that few speculators actually understand.

 In the 1990s, value investing was dead. That decade saw the death of Julian Robertson’s hedge fund and the near death of George Soros’ hedge fund due to clients withdrawing their cash to chase growth. The only reason Warren Buffett wasn’t fired as a money manager was because Berkshire Hathaway was his own personal holding company and not a traditional mutual fund or hedge fund that can face redemptions.

 Of course, we all know what happened next. Once the tech bubble burst, value investing came back with a vengeance and went on to crush the market for nearly a decade.

There are ways to create a portfolio flexible enough to adapt quickly to these constantly changing markets. When a bear market rears its head, you’ll want to be able to profit rather rather than lose it all. And Charles knows just how to do this.

In the coming weeks, he’ll share with you a new way to invest. So stayed tuned to The Rich Investor for more on this opportunity. When the going gets tough, it’ll give you a reason to celebrate.