Trump is upping the ante in the trade war… Why it’s a win-lose deal if you have money in stocks… In the mailbag: “America’s corruption can’t hold a candle to socialist countries (yet)!”

We begin today’s dispatch with a subject we’d hoped had gone away…

As recently as March, the mainstream media was reporting that the U.S. and China were in the final stages of wrapping up the trade war.

And President Trump has been relatively quiet on the subject since then.

But over the weekend, the president ended that silence. He threatened to jack up tariffs on $200 billion of Chinese imports and include a further $325 billion of goods in the new tariff regime.

The Chinese fired back by saying they’d pull their lead negotiator from a scheduled trade meeting in Washington, D.C., this week.

And the reaction from stock market investors was sharp and swift.

The S&P 500 futures – which allow investors to bet on the direction of the stocks ahead of the opening bell – tumbled as much as 2%.

And this was accompanied by a surge in Wall Street’s “fear gauge.”

The CBOE Volatility Index – commonly known as the VIX – rose by as much as 46%. The so-called fear gauge peaked at 18.80, its highest level since late January.

This won’t come as a surprise to regular readers…

As Legacy Research cofounder Bill Bonner warned in these pages recently, you can count on ALL government interventions to kill off economic growth.

Trade wars are a classic example. The idea behind them is that governments can tilt the playing field in their favor by picking winners and losers.

But as Bill has been telling his readers, capitalism doesn’t work that way. The more you bend, bang, and bamboozle it out of shape with government interventions… the more you stymie real economic growth.

That’s also the lesson from history. As we’ll show you, the last time we had this serious tit-for-tat trade war was at the start of the Great Depression.

Bill says economies run on either win-win or win-lose deals…

And the best kind of economy runs on win-win deals.

Sadly, trade wars don’t fall into that category. Here’s Bill with more on why that is…

Win-win deals are winners because they are always voluntary. So they allow people to decide for themselves what they want. Then, through the information carried in market-set prices, these deals help businesses and individuals maximize their satisfaction.

The baker does not light his oven at four in the morning for the love of baking. Neither does the bakery patron share his wages with the baker out of compassion. Rather, both are engaged in a win-win deal of mutual benefit and voluntary exchange.

Win-lose deals are different. In a win-lose deal, one side forces the deal on the other side. And only one side profits. Bill again:

In win-lose deals, one side reaps where someone else has sown… one side takes the profit where someone else has taken the risk… one side enjoys capital it never saved and drinks it never poured.

Some people do their win-lose deals outside the law – petty stick-up men and counterfeiters. More of them use the law itself – the administrative, regulatory, and crony apparatus of government – to get what they’re after.

Capitalism favors win-win deals. Socialism, on the other hand, favors the win-lose variety.

That’s what makes investors so scared of an escalating trade war…

As Bill has been warning, trade wars shift the economy away from the win-win deals of capitalism and toward a more win-lose type of economy.

Here he is with more…

To simplify, there are only two ways to do things. Either voluntarily, by win-win deals… or involuntarily, by telling others what to do. Capitalism only makes sense as a voluntary, win-win system.

Socialism is different. An elite decides who gets what, by imposing win-lose deals – price-fixing, involuntary employment, tariffs, taxes, regulations – at the point of a gun.

That’s one explanation for why we saw such heavy selling pressure in stocks today right after Trump’s announcement on tariffs.

Investors tend to be strong supporters of free-market capitalism. They know trade wars clog up the system with win-lose deals. And they know this has a habit of ending badly, as a result.

The standout example was during the Great Depression…

After the 1929 crash, Congress decided the best way to protect the U.S. economy… and American workers… was by jacking up tariffs on imports.

In 1930, Congress passed the Smoot-Hawley Tariff Act. It raised tariffs on more than 20,000 imports to the U.S. These tariffs ran as high as 59%.

But lawmakers didn’t get the economic boost they were expecting. Instead, America’s trading partners slapped retaliatory tariffs on U.S.-made goods…

…global trade shrank by about 66%…

…and the percentage of Americans out of work shot up from 9% in 1930 to more than 25% three years later.

The trade war didn’t help stocks, either. The S&P 500 didn’t bottom until 1932… when President Franklin D. Roosevelt was elected on a campaign to lower tariffs.

We’re not saying things are as bad now as they were in the 1930s…

Today’s trade war isn’t yet at the level it was back then.

But if the Great Depression is any guide, further escalation of the trade war is bearish not just for the economy… but also for stocks.

So this is a story we’ll be keeping a close eye on.

Tomorrow… we’ll be sharing with you a sneak peek of Bill’s new book, all about the battle between win-win and win-lose deals.

As you’ll see, it lays out in detail how it’s either win-win or lose for the economy… and why it’s likely going to be lose.

So look out for that in your inbox at the regular time of 5 p.m. ET.

(If you’re a Bonner-Denning Letter subscriber, you don’t have to wait. Access a full electronic version of Bill’s new book here.)

In the mailbag: “America’s corruption can’t hold a candle to socialist countries (yet)!”

Last Monday, we revealed how the feds are working with airlines to roll out face-recognition systems at 17 airports across the U.S.

We passed along some pointers for how you can avoid having your face scanned at boarding gates. And we asked whether you’d be opting out of this process.

So far, it’s a mixed bag…

I think this is a good thing for speeding up lines and letting the authorities know if any terrorists or wanted criminals are passing through. If you are not guilty of anything, you have nothing to worry about, if this is what helps keep you safe.

– Christopher S.

I recently flew from Calgary to Dallas/Fort Worth. One clears U.S. Customs in Calgary, and I had to submit to facial scanning, as no other option was available, if I wanted to return to the U.S.

While opting out of facial scanning may be an option with the airlines, it does not appear so with the U.S. Customs, unless of course, one is coming across our southern border illegally. Thanks for your article.

– David T.

I avoid flying as much as possible. If forced to fly, I opt for avoiding facial scans, if possible. I do not believe that facial-recognition software is infallible yet, and in its present state, can cause serious problems for some harmless travelers, and malevolent opportunities for others.

– Janice M.

Meanwhile, the long-running debate over socialism versus capitalism rages on, after reader Alden T. claimed America was “the most corrupt country on Earth.”

And not everybody sees eye to eye with Alden…

America’s corruption cannot hold a candle to that in the socialist countries (yet)! So many foreigners are desperate to come here precisely because they want to escape the devastation that results from the “rule of men” (corruption) in place of the “rule of law” (justice and equality of opportunity) in their home countries.

Our debt-currency system is the most corrupting flaw of all: It allows the rich to make “money” out of nothing and turn it into real property and goods, while enslaving the rest of the people with unpayable debt.

– Jan M.

Are you willing to trade your privacy for the promise of catching terrorists, like Christopher S.? Is Bill right that trade wars are win-lose deals?

Tell us what you think at [email protected]. We love hearing from you. And we read every email you send in.



Chris Lowe
May 6, 2019
Lisbon, Portugal