The Motley Fool

Quick Thought Of The Week: Hammerhead

When all you have in your toolbox is a hammer, then everything starts to look like a nail. That’s great if the repair work requires beating, forging, shaping, forming or moulding. But not if it requires something with a bit more finesse.

That basic rule of Do-It-Yourself seems to be beyond the comprehension of the current US administration. In a desperation to get things done – even without the approval of elected lawmakers – the administration has decided to punish any country that stands in his way with tariffs.

The ham-fisted tactic might work with weaker countries. The threat of tariffs can succeed with countries that are dependent on exports to America. But as we have seen with China – a country that exports to all parts of the world – tariffs are about as impactful as a mosquito bite on an elephant.

But that matters little for the man with a hammer – just bang even harder. The latest threat, namely, more tariffs on Chinese imports if President Xi refuses to meet with the American president at the G20, borders on the comical. That is the kind of behaviour we expect from a two-year-old.

But there are serious implications for businesses beyond the comedy….

…. there is no knowing where the hammerhead could hit next. It could be any country that doesn’t fall in line with America’s view that Huawei is a danger to national security. It could be any country that dares to trade with another country that America doesn’t like.

Businesses like certainty. However, certainty is in short supply so long as America and China are at each other’s throats.

But maybe uncertainty is the new certainty for now, which means that markets could remain volatile. But that’s alright. Uncertainty is only a problem if your time horizon isn’t long enough.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.