The Republicans and Trump seem to be gathering momentum to pass broad sweeping economic change. Here’s the unintended consequences
1.Border adjustment tax- something will have to placate the budget hawks for Trump to spend a $1 trillion on infrastructure. As I understand it now the border adjustment would levy a huge tax on imports. Since almost everything we buy at Walmart is made overseas, mostly in China, this will drive up the costs of many,many items. 70% of the economy is consumption.
2. Supposedly this will drive up the value of the dollar but I frankly don’t see why but that is the consensus view. A higher dollar will do more to hurt the manufacturing sector, the very thing that Trump is trying to stimulate.
3. The Fed reacting to the rise in the CPI index brought on by the border adjustment tax will misinterpret this as inflation when it really is something else entirely. They will raise rates faster and more aggressive than the market expects, putting downward pressure on both financial assets and real consumption. In short, stagflation, the worst of all worlds.
4. At first the market rises on the phantom of increased American manufacturing for domestic consumption and the immediate increase in jobs in an already tight market. The market will rally, the dollar will strengthen, the Fed will tighten.
5. France will have a general election at the end of April and Marie Le Pen, the Nationalist Front candidate will likely enter a run off on an agenda to call a referendum on France’s continued membership in the EU. The French people have had enough of Muslim immigration and will overwhelmingly vote to withdraw. The polls show 60% of the populace already wants to withdraw. Without France the EU will collapse and the future of the euro is uncertain causing a world wide financial market melt down.
All this comes crashing down as we head into a recession while the Fed is raising rates because people will not have money to pay for the increased cost of American made goods. Financial markets will sell off as hard or harder than 2008. Trump seeing his popularity plummet will bomb North Korea to in a wag the dog move. Sell in May and go away may be the best advice ever.