Haymaker - LVG Edition
Louis Gave on the Climate, the China & Western Industry
“As history has repeatedly proven, one trade tariff begets another, then another - until you've got a full-blown trade war. No one ever wins, and consumers always get screwed.” -Mark McKinnon
As most Haymaker readers are aware, the renowned Louis Gave has offered to periodically provide content to all of you. (As is typical, the full note is available for paid subscribers.) There’s no one I know who is as prolific when it comes to writing and speaking about big-picture geopolitical, financial, and economic trends as is Louis. Accordingly, what you will see in these pages is a small fraction of what he generates. However, as you’ll soon see, it is top-notch material.
In this note, he’s pointing out the failure thus far of the tariffs put on Chinese goods by both the Trump and Biden administrations. As I’ve often noted, policy ineffectiveness is very much a bipartisan trait these days.
It is interesting that despite the 100% tariff President Biden announced this week on Chinese electric vehicles (EVs), he is not placing them on hybrids from companies like BYD, China’s largest automaker. Certainly, that may change. Yet, for now, this is another reason to be much more bullish on the growth outlook for hybrids than for EVs. In turn, this means the outlook for the critical hybrid component of palladium remains highly lustrous.
Another investment relevant takeaway, as I read and re-read LVG’s note, is that the attempt to both go green and decouple from China is extremely likely to put upward pressure on inflation. That seems to be lost right now on the investment community at large which is busy celebrating yesterday’s marginally cooler inflation report.
It continues to be my view that investors with heavy exposure to traditional financial assets — and that is most of you — would be well-advised to hold increasing quantities of scarce commodities like palladium, uranium, oil, and natural gas. Fortunately, with the exception of uranium, the rest are closer to their lows than their highs, especially on an inflation-adjusted basis. Even with uranium, the supply/demand dynamics strongly suggest much higher prices over time.
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David “The Haymaker” Hay
Protectionism, US Industrial Policy And The Dollar
Louis-Vincent Gave
Candidate Joe Biden campaigned on a platform to adopt a green new deal, invest heavily in an energy transition and decarbonize the US economy. These promises were key to him winning over younger college-educated voters and suburban moms. So for the Biden administration to suddenly reverse course and impose big tariffs on Chinese electric vehicles, batteries and solar panels marks a profound shift. If nothing else, making solar panels and EVs more expensive gives a boost to the despised hydrocarbon industry. It is probably a safe bet that in their wildest dreams, Big Oil executives did not imagine that President Biden would one day make it more expensive for Americans to drive EVs and get off the power grid.
President Biden campaigned on his green
credentials...
...but the green goals seem to have been
abandoned in favor of the rivalry with
China
Assuming that the administration is committed to “following the science”, this must thus surely mean that Biden has concluded that climate change is not the emergency it was thought to be just three years ago. This is terrific news; the fact that the planet will now avoid the Armageddon to which we seemed destined should be a cause for rejoicing. Alas, there is a less generous interpretation, namely, that while the threat of climate change has not disappeared, the threat of China now looms larger. Or in other words, even if climate change risks pushing the human race towards extinction, any potential solution that comes out of China should be discarded.
This certainly seemed to be the message coming from the president’s X account (formerly Twitter) on Tuesday (see graphic overleaf). Unfortunately, nothing was said about climate change no longer being an emergency. Instead, Biden’s focus was all about building out US industry to compete with China.
Tariffs can sometimes be a useful tool, if
they are part of a greater plan