This document discusses trends toward de-globalization, including proposed US policies around border taxes. It outlines scenarios where a border tax plan works well and exporters benefit, punishing Mexico with modest US impact, or an ugly trade war hurting US GDP. Key takeaways are that exporters may win under border taxes while importers lose, and the big risk is a trade war, as protectionist US policies could hand global leadership to China.

1. De-Globalization
22 February 2017
War Room

2. HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
AccountabilityScenario Updates

3. Market Update
Protectionist Trends
US Border Tax
Scenario: De-Globalization
De-Globalization
NEW

4. HiddenLevers
MARKET UPDATE

5. Market Update
sources: HiddenLevers, NY Times, CNBC, Kitces Blog, CNBC
New Advisor
Model
Marketplaces
GOP Agenda
Running in
place
Yellen Fed
Now
Irrelevant

6. HiddenLevers
PROTECTIONIST TRENDS

7. Protectionism: USA
Sources: HiddenLevers, CNN Money, Forbes, The New York Times, The Washington Times, USA Today, CNBC

8. Protectionism: Global
sources: HiddenLevers, IBTimes, CNN, CNN 2, Xinhua, Guardian, Daily Beast,
UK
First year as top
10 US trading
partner, not on
Trump’s radar
Much lower
trade deficit
than China/Mex
IT sector getting
hit from Trump
H1-B shift
France Mexico China India
Promoting
domestic
consumption
since 2009
financial crisis
Growing clout
with Europe +
EM as it turns
away from
unwelcoming
western
markets
Out of EU, into
better trade
deals on its own
+1.7% Highest
GDP in first world
60% of business
leaders saying
Brexit already
having negative
impact on firm
Fear of Le Pen,
heavy populist
agenda
Gap between
German +
French Yields
greatest ever
China-France
new deals on
nuclear +
industrial chain
Will retaliate
against US,
eliminating US
jobs
Pivoting away
from USA –
Spain, Lat Am
China-Mex
relations at an
all time high

9. • Tariff of Abominations (1828)
• Tariff of 1857
• Morrill + Civil War Tariffs
(1861-1864)
• Smoot-Hawley Tariff (1930)
• Trade Agreements Act (1934)
Protectionism: Historical Analogies
Sources: HiddenLevers
$1.06
$0.97
$0.91
$0.79 $0.78
Year 1929 1930 1931 1932
U.S. Real GDP ($ Trillion)

10. HiddenLevers
US BORDER TAX

11. Border Tax: 101
Sources: HiddenLevers, Daily Signal
2015 U.S. GPD:
$18tn
Imports
$2.7tn
Exports
$2.2tn
The great majority of GDP is still domestic.

12. Border Tax Opponents:
Wal-Mart and major retailers
Koch Industries and oil refiners
Border Tax: Corporate Civil War
Sources: HiddenLevers, Fortune, Bloomberg
52-48
GOP
Border Tax Supporters:
Boeing, GE, Oracle
20 other major exporters
GOP can only lose two votes in Senate:
Tom Cotton (Arkansas - Wal-Mart)
David Perdue (past Dollar General CEO)
both opposed

13. Border Tax: Winners + Losers
sources: HiddenLevers, Reuters, Goldman Sachs
Retailers, Apparel,
Tech Hardware suffer
Aircraft, Software,
Media benefit
WINNERS
Discount Retailers
(Chinese imports)
Net Import Share of Products by Industry
Drivers also suffer –
gas prices may rise 30
cents to offset tax on
imported oil

14. Border Tax: Currency Impact
Sources: HiddenLevers, Nasdaq, Markwetwatch
USD action in 2017 shows
border tax less likely
Rise in value of USD now may
reign in US economy
Currency shift has 5y lag from
trade balance
+8%
-2.5%

15. Border Tax: Threat of Retaliation
sources: HiddenLevers, Financial Times,
WTO
CHINA
MEXICO

16. HiddenLevers
SCENARIO: DE-GLOBALIZATION

17. SCENARIO: Currency Wars Outdated
sources: HiddenLevers
Currency Wars De-Globalization

18. GOOD: Tax Plan Works
source: HiddenLevers
Corporate civil war ends up growing GDP
USD gains mostly
priced in
Exporters win
foreign revenue
not taxed
Import tax doesn’t
harm corporate
tax cuts

19. BAD: Punishing Mexico
source: HiddenLevers
Border Tax kills Mex imports / labor / repatriation
US impact
limited, but US
jobs will be lost
Loss of
immigrants
hurts US GDP
US auto + retail
hurt – lot of
Mex connects

20. UGLY: Trade War
source: HiddenLevers
China + Mexico retaliate as Border Tax takes effect
Heavy GDP loss,
China likely the
winner
Warning on
1:1 trade duties
has been given
China winning
trading friends
globally

21. SCENARIO: De-Globalization
Good:
Tax Plan
Works
Bad:
Punishing
Mexico
Ugly:
Trade War
USD
-10%
S&P 500
-25%
USD
FLAT
S&P 500
-5%
USD
+6%
S&P 500
+14%
The positive impact of
corporate and personal tax
cuts overwhelms the
negative impact of import
taxes, driving growth and
market gains.
President Trump has singled
out Mexico, and might
attempt a tariff or a NAFTA
rollback, with modest US
impact.
A trade war with China or
other major trading partners
might ensue if the BAT is
passed. Economic growth
could fall as a result, driving a
correction.

22. De-Globalization– Take Aways
Exporters win, Importers lose
Big risk = trade war
Border tax plans will struggle
in US Senate
Protectionist US
handing leadership
baton to China