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Trade Tariff Winners

Written by Briton Ryle
Posted July 31, 2018 at 8:00PM

Reuters had this sentence in one of its articles from a day or two ago: “But as Trump has sought to pull his party toward more protectionist trade positions...”

I underlined the word “protectionist” for emphasis because I've been seeing the phrase more and more lately. And there's an important distinction here. 

You'll find a few subtle variations in the definitions for “protectionist” if you Google the term. (Not sure why we can't just decide on one definition and go with that. I guess this way we get to have more things to argue about, which is important because we don't have enough things to disagree about now.)

Anyway. I like this one: “A policy of shielding a country's domestic industries from foreign competition by taxing imports.”

Because adding the word “competition” brings a lot to the conversation. We now have a reason for the protectionism. And we must ask if competition is really at the heart of what Trump is doing...

There are areas within the global economy where the U.S. is absolutely not competitive. Like clothes. You can buy pretty decent "Not Made in the USA" t-shirts at Target for like $10.

And if you find yourself suddenly separated from your wife and she won't let you take any of the kitchen stuff with you even though some of it was yours to begin with and other stuff was actually a wedding gift for both of you so you have to go out and buy a bunch of stuff, needlessly spending money that you also need to rent an apartment so your kids can come visit like I had to 10 years ago... you'll find some pretty cheap spatulas and spoons at Walmart.

And I'll tell you, there is absolutely no way the U.S. should even try to compete on cheap spatulas. We have no edge in spatulas. There's no value add. No one wants a smart spatula that will ping your iPhone when it's time to flip the eggs.

I'm no expert, but I don't think America makes better plastic than China does. (Though, now that I think about it, I bet you could actually get a couple bucks more for a spatula made of “Freedom Plastic.” Consider that phrase trademarked — Shark Tank, here I come.)

Now, to go off on another completely sideways tangent because I'm on vacation next week and my brain is already on the beach (and probably isn't wearing sunscreen because, well, you know, it's my brain), so I have nothing at all write about, here's the exchange I had with my copy editor this morning:

copy editor [9:42 AM]
haha nice

brit [9:42 AM]
freedom plastic

copy editor [9:43 AM]
i like it
you know people would buy it

brit [9:43 AM]

copy editor [9:43 AM]
you may want to take that out of your article and save that million-dollar idea

brit [9:43 AM]
I am in the wrong job
actually I think once it's in print it's mine

copy editor [9:44 AM]
oh true

brit [9:44 AM]
now others can pursue the idea, do the actual work, and I can swoop in later for free money

copy editor [9:45 AM]

Who says you can't have entertaining economic commentary?

Is There a Point to All This?

Yes. There is a point here. And that point is...

With some products, the single most important factor is labor costs. So, sorry to be the bearer of bad news here, but you're not going to buy a home complete with a smart spatula from the wages you make at my Freedom Plastic factory. (Look, I got a Maserati to pay for...)

So let the Chinese make all that stuff. In fact, if you wanna open a factory in China to take advantage of the cheap labor and use the profits to pay for a nice corporate HQ in Florida, I am completely fine with that. 

There's just no reason for the U.S. to try to compete with China and other countries on labor costs. And at the end of the day, I believe the president knows this. At least I hope he does. Because there are other areas where the U.S. has competitive advantages that should be strengthened and protected. 

Like semiconductor architecture, artificial intelligence, pharmaceutical drugs, financial services, airplanes, and more things my brain can't think of right now.

So I don't think the current trade wars are about protecting every single domestic industry. The ultimate goal has to be to get China to open up its markets more and stop stealing American intellectual property. 

It looks like we may even have the EU on board. And if the two biggest economic zones team up to put the squeeze on China, well, there's gonna be so much winning.

So Much Winning Stocks

It's August. Everybody's on vacation. Volume on the NYSE will be hitting its lows for the year. It's a great time to go shopping for stocks that have been knocked down by tariff concerns. 

Caterpillar’s down $30 from its highs. Boeing’s off $20. First Solar is down 50% from its 52-week highs. 

Those are decent ideas. I’ve got a better one for you: NXP Semiconductors (NASDAQ: NXPI). 

No one has talked much about NXP over the last year or so because the company was getting acquired by Qualcomm for $44 billion. But China nixed the deal in retaliation to the tariffs. And NXP is currently valued at about $33 billion. 

Now, among other things, NXP makes near-field communication chips. These chips talk to each other when they are in close proximity. This is important for, say, letting autonomous cars know when they are close to each other so they don't crash. And how else will your smart spatula know when your eggs are a perfect over-medium?

It seems to me we are still in the early stages of a massive bullish cycle for chips. In the next few years, an absolutely ridiculous amount of data is going to be flying around. Data centers, servers, cloud providers, storage — these stocks are going to boom for the next five years. 

Still, not many people are talking about NXP Semiconductors. At least not in public. But I bet you dollars to spatulas that every major chip company is working out a bid for NXP. And the minute this trade war with China gets resolved (and I firmly believe it will), NXP is gonna jump from $95, where it is now, to at least $125.

There. You're welcome.

Until next time,

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Briton Ryle

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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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