A Parent's View on Trade
My son turned 16 on Saturday. We celebrated with a backyard BBQ for 12 of his friends. That's what he wanted — to party with his peeps in the backyard, in low 40-degree weather. He and I collected deadwood in the woods for the fire pit. I handled the burgers and mac and cheese. He made a pan of baklava for his friends, all by himself.
I didn't help him. I didn't even "supervise." In fact, I went to my place to get a shower. He was on his own...
The phyllo dough was a little dry, so it broke up. He soldiered on. The final product wasn't picture perfect, but it tasted just fine. Of course, the other parents gushed when they dropped their kids off. "He made that all by himself?" "Where did he learn to make baklava?"
He's always loved baklava. I told them he and his grandmother made a pan together when we visited over spring break. Still, I am just brimming with pride at the capable young man my son is becoming.
One of the unusual markers of this generation of kids is that they don't seem to care about getting a driver's license. I had mine the day I turned 16. My son doesn't even have his learner's permit yet. This is a popular topic amongst the parents — why don't they want that freedom or whatever it is?
One parent told me Saturday night that she won't let her 16-year-old kid get his license because Baltimore drivers are terrible. She said he wasn't mature enough to get out there on the road. And I'm thinking, "How will he ever have the maturity and confidence if doesn't get to explore his own capacity to handle adversity and the consequences of his actions?"
It is my generation of parents that have been called "helicopter parents." It's really weird because it is NOT how I grew up. As 10 year olds, we'd be off on our bikes all day, parents having basically no idea where we were. Every dog roamed the neighborhood freely, you knew where the mean ones lived, and you just peddled faster to outrun the slobbering, snarling beast.
I coached Little League baseball until my son was maybe 12. During the "coach pitch" year (when the coach pitches to his/her own players because the kids don't have the accuracy just yet), I discovered that if a kid was struggling to hit the ball, you didn't offer up stupid platitudes like "keep your eye on the ball" or "watch the ball hit the bat." You just throw the ball right at the kid. I guarantee you they will hit it every time.
Humans are capable of some pretty amazing feats when the consequence of failure is physical pain.
"If It Doesn't Kill You..."
In 2014, Saudi Arabia decided to try to kill off U.S. shale oil companies. The Saudis well knew that U.S. shale companies had business models that worked if oil prices were above $60–$70 a barrel. But drive prices below that, and those profit-gushing wells would suddenly be spewing massive losses.
So the Saudis started pumping oil like there's no tomorrow. Oil prices crashed below $40. U.S. shale companies had a baseball coming right at their face. Over 100 companies missed and got plunked. But most of them did what it took to fight that pitch off. They found ways to drill more effectively, they employed more automation, they squeezed service companies...
It is a beautiful irony that it was the Saudis who blinked. They had to cut production in order to get prices back to a point where their budgets didn't suffer the pain.
U.S. shale companies won. And it's because no one was there to hold their hand. They were all alone when they stared into the abyss and faced their "do or die" moment.
Some retailers are being run out of business by Amazon. Others, like Walmart, have stepped up their game and are getting competitive with Amazon.
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So I wonder, are we doing our steelworkers any favors when we slap tariffs on Chinese steel? Will our aluminum producers get better at their craft if they know they don't have to improve in order to survive?
You can argue that China doesn't play fair on trade. And you're right. They don't. The Chinese government supports many of its industries, sometimes making it so they can survive even if they sell stuff at a loss. And those retaliatory tariffs they announced are actually additional tariffs that will be levied on top of tariffs already in place.
But you know what? The Saudis weren't paying fair, either. They were subsidizing their own oil sales with bond sales and entitlement cuts until they couldn't take the pain anymore.
And that dog that wanted to bite my foot off had four legs, and I only had two. Sad! Very unfair!
Life Isn't Fair
This may just be a dad thing, but there aren't many things I've loved more than giving the "look" as I say, "Well, ya know... life isn't fair."
I've always said this as a kind of joke, but I do believe it. And I simply refuse to send them out into the world thinking they "deserve" anything, that A plus B will somehow magically equal C. Yeah, you damn well better do A and B. But there is simply no way to know what it will add up to.
I truly feel bad for Appalachian coal workers who believed coal mining could be revitalized and their jobs saved. They were told that somehow the market was being unfair to them, when the simple fact was that natural gas makes more economic sense as a fuel.
Tell people the truth. If somebody else can do it better or cheaper (or with less pollution), well, you have a choice. You can try to compete. Or you can move on, do something else, and enjoy the benefit of their cheaper production.
This is one reason (of course, there are others) the U.S. runs a trade deficit in the first place. Other countries can make clothes, for instance, cheaper than America can. You wanna pay $50 for a pair of Levi's made in Malaysia or $100 for Levi's made in South Carolina?
Now, again, it is well known that trade with China is not on a level playing field. Especially when it comes to intellectual property (IP) and trade secrets. President Trump is right to highlight these inequities and to play hardball to achieve some changes that will ultimately benefit U.S. companies.
Great. I'm all for it. But let's stop pretending everything should be fair.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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